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Federal Reserve Bank of St. Louis
JOINT C O M F E R E N C E
O F THE FEDERAL RESERVE R O A R D
“ITH T H E
GOVERNORS A N D F E D E R A L R E S E R V E A G E N T S A N D C H A I R M E N
OF T H E F E D E R A L R E S E R V E B A N K S
“ashington,
D . C.,
November 4 , 1927.
“alter S . Cox,
Washington, D.C.
=
JOINT CONFERENCE O F THE FEDERAL RESERVE BOARD
WITH T H E
GOVERNORS A N D REDERAL RESERVE AGENTS A N D CHAIRMEN
OF THE FEDERAL RESERVE BANKS
Treasury Building,
Hearing R o o m Federal Reserve Boand,
Friday, November 4 , 1927,
A Joint C o n f e r e n c e
o f the Federal Reserve B o a r d w i t h
the Governors a n d Federal Reserve Agents a n d Chairmen o f
the Federal Reserve Banksconvened a t 10.55 o'clock a . m.
in t h e H e a r i n g R o o m o f t h e F e d e r a l R e s e r v e B o a r d , T r e a s -
ury Building, Washington, D . C., g n Friday, November 4 ,
L927.
PRESENT:
Hon. R . A . Young, Governor o f the Federal Reserve
Hon. Edrund Platt, Yice-Governor o f the Federal
Reserye B o a r d ;
Mr. A . C . Miller, M e m b e r
o f the Federal Reserve
Hamlin, Member o f the Federal Reserve
Board;
Mr. G. RK. James, Member o f the Federal Reserve.
Board;
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Federal Reserve Bank of St. Louis
e
Mr. B&B. H . Cunningham, M e m b e r o f t h e F e d e r a l R e s e r v e
Board;
PRESENT ALSO:
The Governors o f the Federal Reserve B a n k
as follows:
Mr. W . P. G . Harding, Governor o f the Federal
Bank o f Boston;
Mr. Benjamin Strong, Governor o f the Federal
Reserve B a n k o f N e w York;
Mr. Geo. W.Norris, Governor o f the Federal
Reserve B a n k o f Philadelphia;
Mr. E. R, Fancher, Governor o f the Federal
Reserve B a n k o f Clevejand;
Mr. Geo. ¢ , Seay, Governor o f the Federal
Reserve B a n k o f Richmond;
Mr. M . B . Wellborn, G o v e r n o r
o f the Federal
Reserve B a n k o f Atlanta;
Mr. James B . McDougal, Governor o f the Federal
Reserve B a n k o f Chicago;
Mr. David C . Biggs, Governor o f thé Federal
Reserve B a n k o f St.Louis;
Mr. W . B . Geery, G o v e r n o r
Bank o f Minneapolis;
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Federal Reserve Bank of St. Louis
o f the Federal Reserve
5
Mr. W . gd. Bailey, Governor o f the Federal
Reserve B a n k o f Kansas City;
Mr. L y n n P. Talley, Governor o r the Federal
Reserve B a n k o f Dallas;
Mr. Wm. A . Day, Senior Deputy Governor o f the
Federal R e s e r v e B a n k o f S a n Francisco;
Mr. G . L . Harrison, D e p u t y Governor o f the
Federal Reserve B a n k o f N e w York, a n d Secretary t o the
Conference o f Governors.
PRESENT ALSO:
The Federal Reserve Agents a n d Chairmen o f the
Federal Reserve B a n k a s follows:
Mr. Frederic H. Curtiss, Chairman and Federal
Reserve Agent o f the Federal Reserve B a n k o f Boston;
Mr. G . W. SeGarrah, Chairman a n d Federal
Reserve A g e n t o f t h e F e d e r a l R e s e r v e B a n k o f N e w York;
Mr. R . L . Austin, Chairman a n d Federal Reserve
Agent o f t h e F e d e r a l R e s e r v e B a n k o f Philadelphia;
Mr, George DeCamp, Chairman and Federal Reserve
Agent o f t h e F e d e r a l R e s e r v e B a n k o f Cleveland;
Mr. W i l l i a m W . H o x t o n , C h a i r m a n a n d F e d e r a l
Reserve Agent c f the Federal Reserve B a n k o f Richmond;
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Federal Reserve Bank of St. Louis
4
Mr. Oscar Newton, Chairman a n d Federal Reserve
Agent o f t h e F e d e r a l R e s e r v e B a n k o f Atlanta:
Mr. W i l l i a m A . Heath, C h a i r m a n a n d F e d e r a l R e -
serve Agent o f the Federal Reserve B a n k o f Chicago;
Mr. William McC. Martin, Chairman a n d Federal
Reserve Agent o f the Federal Reserve B a n k o f St.Louis;
Mr. J o h n B. Mitchell, Chairman a n d Federal R e Agent o f t h e F e d e r a l R e s e r v e B a n k o f Minneapolis;
Mr. M . L . McClure, Chairman a n d Federal Reserve
of t h e F e d e r a l R e s e r v e B a n k o f Kansas C i t y s
Mr. C . C . Welsh, Chairman e n d Federal Reserve
of t h e F e d e r a l R e s e r v e B a n k o f Dallas;
Mr.Isaac B.Newton, Chairman a n d Federal Reserve
of t h e F e d e r a l R e s e r v e B a n k o f S a n Francisco.
P R O
Governor Young.
B
D
Gentlemen,
t a o Ss.
w e a r e r e a d y t o proceed.
We have heard f r o m the Agents o n practically a l l o f their
program, e x c e p t t h a t p a r t o f t h e i r p r o g r a m w h i c h i s a l s o
on the Governors! program.
Governor S t r o n g ,
a s C h a i r m a n o f t h e Governors!
Confer-
ence, t h e Board would like t o have y o u report those things
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Federal Reserve Bank of St. Louis
5
which y o u t h i n k t h e B o a r d i s i n t e r e s t e d
i n o n your pro-
gram.
Governor Strong. H a v e you the program of the
Governors! Conference before you, sir?
Governor Young. I
Governor Strong.
have.
D i d y o u not mark o n e o r two items
on that?
Governor Young. I
marked y e u r program.
Governor Strong. Mr. Chairman and gentlemen, t h e
Committee o n Open Market Investments h a d expected t o
have a
meeting about t w o weeks before t h e Conference,
but o n e t h i n g a n d a n o t h e r d e l a y e d c a l l i n g t h e m e e t i n g
until t h e d a y immediately before t h e Governors! Conference,
A
s you k n o w , v
w were u n a b l e
t o meet w i t h t h e
Board until Wednesday, t h e first d a y o f our meeting.
After a n all-day meeting o n Tuesday, a n d a meeting w i t h
the Reserve Board o n Wednesday morning, t h i s report w a s
adopted, w h i c h I
will a s k Mr. Harrison t o read, i f h e
will.
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Federal Reserve Bank of St. Louis
Mr. Harrison (reading):
"The committes h a s considered t h e confidential
preliminary m e m o r a n d a s u b m i t t e d
b y t h e Chairman,
and
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Federal Reserve Bank of St. Louis
€
upon t h e b a s i s o f t h e m e m o r a n d a p r o p o s e s t h a t t h e
open m a r k e t p o l i c y o f t h e S y s t e m u n t i l M a r c h l s t
next, unless developments n o t n o w anticipated r e quire a further review, s h a l l be: t o maintain stable
rates f o r m o n e y a t a b o u t p r e s e n t l e v e l s a n d p r e v e n t
further imports o f gold.
"In order t o carry out the above policy, t h e
committee would adopt t h e following program a n d procedure:-
"(1) The plan o f offsetting gold movements b y
purchases a n d s a l e s o f securities w o u l d b e c o n t i n u e d
as heretofore.
"(2) A n y considerable advance i n rates for
money t o w a r d s t h e e n d o f t h e y e a r w o u l d b e d e a l t w i t h
only i f n e c e s s a r y
b y temporary purchases
o f securi-
ties.
"(3) D u r i n g t h e return f l o w o f currency which
usually occurs i n January, sales o f securities would
be made i n amounts sufficient t o insure retirement
of the seasonal issue a n d prevent i t s being added t o
member b a n k reserves.
"(4)
I n event o f the renewal o f a gold movement
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Federal Reserve Bank of St. Louis
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to the United States, g o l d m a y b e purchased abroad
in London, a n d possibly i n Holland a n d Switzerland,
if necessary,
a t approximately their gold export
points,
o r exchange
chased,
s o a s t o arrest,
portation o f gold.
be $100,000,000.
o n thase ccuntries m a y b e pur-
i f possible, a
further t m -
T h e limit u p o n such purchases t o
S u c h purchases would also b e
offsetthe s a m e a s the gold movement.
G o l d o r ex-
change purchased m a y b e invested i n bills o r emplayed a t interest,
a s i n the case o f the Bank o f
England aecount.
"(5) T h e considerations which will guide the
committee a s t o when a n d for what emounts s u c h transactions shall b e made, are:
"(a) T h e amount o f borrowings b y member
banks f r o m the Reserve banks;
"(b) T h e general level of interest rates;
"(c) T h e movement o f foreign exchange rates
as a n i n d i c a t i o n o f p o s s i b l e g o l d imports.
"The committee would expect t o b e Charged with
the execution
o f the program f o r account o f those
Reserve b a n k s w h i c h a p p r o v e a n d participate.’
8
Governor Strong.
T h i s report, Mr. Chairman, c o n -
tains v e r y little detail a n d n o argumentative material,
all o f which f s i n the memorandum referred t o i n the first
paragraph, w h i c h i s too long t o b e read here, a n d all o f
which will b e distributed to. each o f the reserve banks
in t h e u s u a l course.
I n fact, t h e G o v e r n o r s n o w h a v e c o p i e s
OL 3%;
Behind this report i s a development w h i c h has occurred
this year, o f rmch significance t o the Federal Reserve
System. C o n t r a r y t o the common belief,
w e have h a d n o
gaining o f gold i n the United States, t h a t i s monetary
gold i n the United States,
instance,
i n the last three years, f o r
f o r t h e reason that w e have m a d e large sales o f
gold which have n o t b e e n shipped, a n d which i s n o w earmarked i n the bank i n New YorkWe made a
sale o f £100,000,0900 this summer t o one
of the continental banks o f issue, w h i c h has n o t y e t b e e n
shipped.
W e are just n o w i n the midst o f concluding d e -
livery o f $50,000,000 more t o that same bank. That will
be f i n i s h e d n e x t w e e k . I
think
$31,000,000 o f that already.
w e have delivered about
W e have shipped thirty-one
and a half million gold t o the Argentine;
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Federal Reserve Bank of St. Louis
w e have s o l d
9
five million t o Belgium, a n d w e have just received di-
rections t o start the shipping o f $36,000,000 t o Brazil.
We also have concluded arrangements w h i c h were required i n t h e r e o r g a n i z a t i o n
o f t h e Polish monetarysit-
uation a n d have shipped about $15,000,000 o f gold t o them.
We now have another, a seasonal movement t o Canada, which
may take forty o r fifty million.
W e n all these trans-
actions a r e c o n c l u d e d t h e n e t r e s u l t w i l l b e t h a t t h e s t o c k
of the monetary gold i n the United States will have been
reduced about $150,000,0C0 below what i t was two years
ago.
T h e reason that i s not better understood generally
is because, o u t o f consideration t o the banks abroad w h o
are buying this gold, w e have n o t pfiblished t h e detail
figures
o f gold held under earmerk.
The committee h a s decided t h a t i t would b e wise, s u b ject t o the approval o f the Federal Reserve Board,
t e com-
mence that publication probably the first o f December,
and i t will likely show that
neighborhood o f $155,000,000
o d
ear-marked i n the
i n gold i n the Federal Reserve
Bank o f New York, a n d possibly more t h a n that b y the time
the publication takes place.
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Federal Reserve Bank of St. Louis
Now, s o much o f this gold will have moved out this
10
yoar, over $250,000,000 altogether, that i t becomes in«
creasingly important t h a t t h e impairment o f the bank reserves, w h i c h result f r o m this loss o f gold, should b e
‘in some w a y compensated for, a n d t h e amount o f the System
heldings o f securities now, which wasat a very low point,
@ little over $100,000,000--about three hundred and eightyodd million now, o r $390,000,000, o r total holdings over
#$500,000,000,
i s due entirely t o the purchase o f securi-
ties which have. been made t o compensate f o r this loss o f
gold.
T h e amount purchased outside o f these compensating
transactions being only $79,000,000.
I think t h e rest o f the report, M r . Chairman,
is
clear enough, a n d requires n o particular information be-~
yond w h a t its c o n z a i n e d i n t h e m e m o r a n d u m .
Governor Young. I
would just like to say for the
Agents, t h a t t h e p r e l i m i n a r y r e p o r t
ts 4
very c o n c r e t e o n e
and will n o doubt answer. questions t h a t might arise i n
your m i n d s
i n reference
t o t h e w h o l e procedure.
I would like t o say also, Governor Strong, t h a t there
was a
little discussion t h e other d a y a s t o how many more
United States securities t h e S y s t e could buy. T
had
Mr. Smead figure that out for the entire System, not for
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Federal Reserve Bank of St. Louis
ed.
any particular bank, and i t figurés $781,000,000 more,
as o f date November 2nd.
tion, that i s all. I
T h a t i s just f o r informa-
thought { t might b e a billion
or a billion a n d a half, b u t i t wont b e that high.
Governor Strong.
T h e other topics which m a y b e
reported t o this meeting a r e these:
W e find, Mr. Chair-
man, t h a t t h e r e a r e s i x o r s e v e n i t e m s
o n our program
and p e n d i n g b e f o r e t h e S y s t e m t h a t h a v e t o d o w i t h
legal matters,
s o m e o f them very technical l e g a l quest-
ions, and the meeting passed a resolution expressing
the view t o the Federal Reserve Board that t h e time has
possibly n o w a r r i v e d w h e n a n o t h e r m e e t i n g o f t h e c o u n s e l
of the Reserve Banks t h e ? Mee Beker b e asked t o be
present a t that meeting, a n d that i t be held a t some
convenient t i m e b y arrangement.
I would like also t a refer t o the report, w h i c h I
belleve w a s m a d e b y Mr. C a s e ,
o n the development
of
these investment companies buying bank stocks. T h a t
was a preliminary report only, Mr. Chairman; i t has
been considered b y the Governors a t their meeting, a n d
it i s proposed,
report,
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Federal Reserve Bank of St. Louis
a s t h e result
t o make a
o f their a c t i o n o n that
inquiry considerably more i n detail
dae
than has y e t been made, s e n d that t o each Federal r e serve bank, a n d , b a s e d u p o n t h e r e p o r t t h a t w e w i l l m a k e
in N e w York,
w e w i l l a s k e a c h o f t h e r e s e r v e banks,
i n
turn, t o make similar inquiries i n their districts, a n d
exchange reports between a l l o f the reserve banks.
We considered t h e regulations w h i c h a r e n o w about t o
be issued b y the Federal Dondeve Board a n d made some recommendations
o n two o r three points.
the p r e s e n t t h e r e s e e m s
O n e was that f o r
t o b e n o pressing n e e d o f a
regulation b y the Board governing non-cash collections,
and i t seemed t o u s desirable t o consider again,
o r to
have t h e Standing Committee o n Collections consider again,
the c i r c u l a r s
o f t h e reserve banks a n d endeavor
t o get
them more nearly uniform, postponing t h e issuance o f the
regulations f o r t h e present.
T h e r e was some specific
suggestions m a d e a s t o the treatment o f these circulars
by the committee, a n d the committee i s supposed t o report
back t o t h e n e x t m e e t i n g o f Governors.
With regard t o the regulation referring t o reserves o f
member banks,
i t was unanimously recommended that t h e
proposal o f the pending regulation b e adopted;that member b a n k s
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Federal Reserve Bank of St. Louis
i n cities w h e r e t h e r e a r e reserve banks
o r
13
branches o f reserve banks, m a k e their reserve calculations twice a week, a n d that otherwise t h e period should
remain unchanged.
It fas also recommended t o the Federal Reserve Board
that t h e progressive penalty o n deficient reserves b e not
made mandatory,
a s was proposed i n the regulation;
in
fact, t h a t w o u l d l e a v e t h e r e g u l a t i o n a s t o p e n a l t y e x +
actly a s i t i s now.
The meeting also reviewed t h e report which was made
to the Federal Reserve B o a r d b y the System's Committee o n
Acceptance Transactions.
and h a d t h e b e n e f i t
T h e committee met i n New York
o f o n e o r t w o meetings w i t h t h e m e n i n
charge o f that business i n all the principal accepting
banks a n d firms, a n d t h e committee h a s made a recommenda-
tion which involves n o change i n the existing regulation,
put some change i n the rulings t o liberalize t h e m somewhat a n d p u t t h e N e w Y o r k b a n k s
i n 2 better c o m p e t i t i v e
position with the foreign’ banks.
What has happened i n that business recently ts, f r o m
our point o f view, unfortunate.
banks u n d e r t o o k
o n e o f the large London
t o reduce t h e acceptance c o m m i s s i o n
t o one-
eighth p e r quarter, instead o f the customary minimum o f
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Federal Reserve Bank of St. Louis
14
one-fourth o f o n e p e r c e n t p e r quarter,
w h i c h meant that
their charge o n acceptance credit w a s one-half o f one
per cent p e r annum instead o f one per cent p e r annum.
This spread t o all t h e London accepting houses a n d
banks a n d w e had a reaction i n New York, where t h e y
have reasonable uniformity w i t h regard t o the charge p e r
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Federal Reserve Bank of St. Louis
quarter,
s o that t h e y are a l l making e « commission charge
in New York, a n d unless something i s done t h e
aifference o f half o f one p e r cent, instead o f one p e r
cent, which h a d formerly prevailed, means that t h e aire
ferential between t h e bank rate i n London a n d N e w York,
as t o possibly a billion o r a billion and a half aollars
of paper,
i s reduced t o that extent, a n d i t makes t h e
effect o f relationship between t h e bank rate b y s o much
less effective.
We a l s o c o n s i d e r e d w i t h Mr. M i l l s ,
w h e attended
our meeting, t h i s p u z z l i n g o n d r a t h e r o b s c u r e q u e s t i o n
of the gold points a n d t h e practice o f our Treasury i n
puying a n d selling g o l d a t tdentical prices b o t h ways.
Mr. Harrison has made a special study o f that, a n d i f
you will permit h i m I will a s k him t o report o n it,
Me. C h a i r m a n .
Governor Young.
Mr. Harrison.
is true,
M r . Harrison?
M r . Chairman a n d gentlemen, while i t
a s Governor S t r o n g says,
i n the past t w o years
there h a s b e e n n o n e t i m p o r t a t i o n o f g o l d 2 ; t n e country,
nevertheless o v e r t h e p a s t s e v e n y e a r s a p p r o x i m a t e l y a
billion and a half o f gold has been added t o our monetary
reserve.
W i t h i n t h e past three years, w h i l e there has
been relatively n o net change, s t i l l there have been shipments b o t h ways, s o that w e feel that this ever-increasing
volume o f shipments b a c k a n d f o r t h b e t w e e n t h e c o u n t r i e s
should n o w , a n d h a s now, b e c o m e t h e o b j e c t o f v e r y i m p o r t -
ant study o n the question o f the gold point. T h a t i s
true, a n d becoming more a n d more true, a s t h e various
countries i n Europe ere going back t o the gold standard.
The delicacy o f the gold
p o i ns atsuch
h
a n influence
on t h e g o l d s h i p m e n t s a n d r e l a t i v e r a t e s
i n the differ-
ent countries, t h a t w e have felt thet w e should compare
very c a r e f u l l y o u r p r a c t i c e
i n this m a r k e t ,
selling g o l d , w i t h t h e p r a c t i c e s
i n buying a n d
i n the various o t h e r
markets o f the world,
Under t h e minting
- . a n d coinage laws o f this
country i t i s p o s s i b l e f o r t h e S e c r e t a r y o f t h e Treasury,
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Federal Reserve Bank of St. Louis
16
in buying g o l d a t the assay office o r a n y o f the
mints,
t o postpone total payment o f that g o l d f o r a
period o f f o r t y days.
A
s a
matter o f fact, h o w e v e r ,
ever since 1880, the law has authorized him, when the
state o f the Treasury would permit,
t o maintain a fund,,
available a t the assay office o r the
e e t
w i t h which
to make immediate advances o n all gold deposited w i t h t h e
Treasury f o r assaying a n d purchase.
It t s the customary v i a d v i e a < % t h e present t i m e
to d o that.
Wailei
t has b e e n different a t different
times during t h e past t e n years, / tt i s the custom f o r
the Treasury toe make immediate advances o f 9O-per cent
on the gold d e p o s i t e d i
n the assay office i n New York,
and the final 2
per cent t o b e paid when t h e finel re-
turns o n the h a n s a r e made a t the e e e office.
This p r a c t i c e
o f o u r Treasury Department
ent F r a m t h e p r a c t i c e
o f a n y other g o l d market
world, a n d the n e t effect’:
the United States a
i s differi n the
o f i t i s t o make u s p a y i n
higher price f o r gold than i s paid
anywhere else i n the world. I n d e e d , t h e practice o f the
Treasury, w h e n y o u take i n t o account t h e melting a n d
alloy charges, a n d the slight discount resulting f r o m
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Federal Reserve Bank of St. Louis
17
the @
per c e n t d e f e r r e d payment, r e s u l t s
i n o u r pay-
ing mint parity less one-seventieth o f one p e r cent.
In t h e L o n d o n market, h o w e v e r ,
t h e practice there
is for the Bank o f England t o b u y gold a t the discount
of one-eighth of one per cent, i n Berlin one-fifth of
one p e r cent, one-third o f one p e r cent i n Amsterdam,
and two-fifths o f one p e r cent i n Switzerland.
Now t h e e f f e c t o f t h i s i s that, t a k i n g a
of gold from London t o New York, f o r instance,
shipment
i f sterl-
ing should fall off one and a half cents from mint
parity, the gold will move towards the United States;
whereas i t has g o t t o g o u p three cents above mint
parity before t h e gold will b e exported f r o m t h e United
States t o London.
graded a c c o r d i n g
I n the other markets t h e p6ikts a r d
t o t h e discount 7
omint s i t i
a t which
they b u y t h e g o l d a n d t h e e x t r a c o s t o f s h i p p i n g t h e
sold t o New York.
I t is true a part o f this discrepancy
in the gold points i s due to the difference i n freight
rates e a s t w a r d a n d westward-bound,
b u t t h e greater p a r t
of the difference i s due t o our practice o f making ‘tmme-
diate advances o n the gold u p t o 98 per cent o f the estimated v a l u e .
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Federal Reserve Bank of St. Louis
18
Now, w é have felt that, w i t h t h e immense shipments
of gold that have been coming this w a y during t h e
past
seven years, t h a t a n i n c r e a s i n g i m p o r t a n c e a t t a c h e s
Qur g o l d p r a c t i c e
a s compared w i t h t h e praetice
to
i n the
meneynarkets that are becoming standardized o n the gold
basis, a n d w e think w e should consider t h e feasibility
of our amending o u r practice i n buying geld s o
a s not
to compete i n the sway I think w e are n o w competing
with
theother markets o f the world, a n d not suck gold
towards
this country.
Now, there a r e a number o f possible difficulties
in t h e w a y o f t h e T r e a s u r y a d a p t i n g t h i s practice.
When
the l a w first authorized t h e Secretary o f the Treasury
to m a k e i m m e d i a t e advances, t h e r e w a s a
desire
on
our p a r t t o a c c u m u l a t e g o l d , a n d t h e i m m e d i a t e a d v a n c e s
encouraged t h e deposit o f gold with us.
A t the present
time t h e r e i s n o t o n l y n o t a n y n e e d f o r u s t o d r a w t h e
gold here, b u t some considerable advantage i n allowing
At t o flow freely t h e other way, b y a n adjustment o f
eur price s c ” t h a t
anybody else.
w e will n o t p a y a n y more than
O n e difficulty
i n our change o f practe
ice i s that approximately fifty millions o f gold a r e
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Federal Reserve Bank of St. Louis
19
produced
i n this c o u n t r y e v e r y year,
a n d politically
it will probably b e very difficult f o r u s t o change
our buying rate s o a s t o make t h e discount o n gcld
produced i n this country equivalent, f o r instance,
to
the Bank o f England discount.
Mr. Miller. D o e s that $50,000,000 g o into the monetary stock?
Mr. Harrison. I
should think not. P r o b a b l y a
part o f that goes i n t o the arts.
good
B u t t h e political
question i s whether t h e producers o f gold i n this country
would b e w i l l i n g t o discount t h e p r i c e t h a t t h e y g e t f o r
the golc, whether i t goes i n t o monetary stock o r into
the. arts.
W
e have felt that there would b e n o acca-
sion f o r t h e T r e a s u r y t o c h a n g e i t s p r a c t i c e
Chase
o f t h a t .kind o f e o t d a n y w a y .
ent p r e c e s s
i n the pur-
I t involves 4
differ-
i n the assay office f r o m what t h e y n o w have
to g o through i n imported monetary g o l d bars.
We have thought that t h e difficulties w e have i n
mind would b e solved i f the Treasury merely should make
a ruling t h a t t h e y w o u l d a b a n d o n t h e p r a c t i c e
o f making
advances o n monetary g o l d bought, w h i c h h a s been imported
tntouG L s
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Federal Reserve Bank of St. Louis
-caunrry .
20
Mr. Miller. Y o u think t h e Treasury could d o i t under
its existing authority?
Mr. Harrison. I
where I
have n o t studied i t t o t h e p o i n t
can give a n y opinion o n that.
New York,
a n d o f those w i t h w h o m I
the Treasury,
I t t s our viéw i n
have d i s c u s s e d
tt in
t h a t i t would b e quite competent f o r t h e
Treasury t o make a
ruling o f that character, a n d thecenly
question i s whether 1 t would b e feasible a n d wise t o d o so.
You s e e t h e laws specifically aut' origing t h e original
deferment f o r forty days w a s longer t h a n i t took t o
assay t h e gold.
N o w that l a w was subsequently amended
and authorized t h e Secretary,
i n his discretion, a n d
if the state o f the Treasury permitted, t o make immediate
advances--it d o e s n o t eompel h i m t o d o so.
is & very important one.
pects
i n s o m e ways.
I
T h e question
i t : i e full -of potitical a s ~
t i s o f great monetary import-
anee, n o t o n l y t o We, b u t t o t h e r e s t o f t h e w o r l d a s
well.
W e have b e e n considering i t during t w a years,
quite informally w i t h t h e Treasury Department, a n d w e
feel that i t i s a matter that ought t o b e debated a n d
studied v e r y c a r e f u l l y b y t h e S y s t e m a s a
whole a n d a t
greeter l e n g t h b y t h e T r e a s u r y Department, b e f o r e a n y -
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
ma.
thing i s done about it; and then whatever i s dene about
it s h o u l d b e done,
w e think, s l o w l y a n d c a u t i o u s l y a n d
after getting t h e benefit o f all t h e reactions o f the
parties t h a t a r e interested i n i t i n one w a y o r another.
Now, t h e e f f e c t o f t h e r u l i n g b y t h e T r e a s u r y t h a t
it w o u l d G i s c o n t i n u e a d v a n c e s w o u l d b e t h e t i n N e w York,
for instance, where a greater part o f the monetary gold
4s imported, a
discount o f approximately . 1 5 p e r cent
would b e made o n any gold beught b y the Treasury. That
is due t o the fact thet i n New York, because o f the
volume o f business, t h e average time taken t o make the
final return o n the gold deposited i s about ten days.
The loss o f interest, figured a t about 4
that t e n days, w o u l d r e s u l t
per cent o n
i n a discount which,
i t so
happens, would b e almost identical with that wrich i s
the c u s t o m a r y d i s c o u n t
present time.
o f t h e B a n k o f England a t t h e
I n other m i n t s w h e r e t h e v o l u m e o f w o r k
is v e r y m u c h less, t h e d i s c o u n t w o u l d b e c o n s i d e r a b l y
less, d u e t o t h e f a c t t h e t t h e i r r e t u r n s a r e m a d e q u i t e
a bit q u i c k e r t h a n i n N e w York.
are m a d e i n a s s h o r t a
five
O r S i z Cavs.
W
I n some mints t h e y
time a s t h r e e d a y s ; o t h e r s
e believe
go
that t h e Tressury could
22
not very well make a n arbitrary ruling f o r deferment
of t e n days a t all mints, because i t i s t h e fact that
4t i s the custom i n some mints t e make returns earlier
than t e n days.
B u t a
universil r u l i n g t h a t t h e y w o u l d
make n o advances, b u t make full payment a t the time o f
final assay, w o u l d fully cover t h e situation i n cur view.
New t h e o n l y question i s h o w best t o study t h e
question further a n d h o w best t o get t h e reactions o f
those that will b e most directly interested i n i t i n
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Federal Reserve Bank of St. Louis
N
this c o u n t r y a n d abroad.
e should s t u d y t h e practice
a little further t o see whether t h e discount o n bars,
that would result f r o m this ruling, w o u l d make a n undue
demand f o r cotn, f o r instance, because i f the experter
eof gold f r o m t h i s c o u n t r y a b r o a d r e a l i z e s t h a t w h e n h e
returns t h e g o l d here, t h a t v e r y gold,
e will g e t
h
a discount o n bers a n d not o n coin, i t will enecurage
the d e m a n d
f o r coin rather
t h a n f o r bars.
been t r y i n g i n t h e l a s t f e w y e a r s
W
e have
t o encourage t h e withdraw-
s that this would have a
al o f bars rather t h a n c o i n , o
little influence o n what w e have b e e n trving t o accomplish i n t h e p a s t t w o years.
In that cennection,
a s y o u all know, t h e Treasury's
25
removal o f the ‘
charge o n bars, l a s t August a
year
ago, h a s resulted i n our being able t o encourage s o m e
exporters o f gold t o take bars, when,
i n the past, i t
has been out o f the question because o f the premium o n
pars,
W e d o not like t o take i t u p with anybody i n such
a way as t o indicate that w e are not perfectly willing t o
give them coin, but i n many eases the b
their purposes better t h a n the coin, espectially i f w e
pay cut circulatpd coin, o n which the abrasion usually
averages f r o m t w o t e t h r e e d o l l a r s
o n every f i v e thousand
dollar bag; s o that everything being equal, t h e y will
take bars rather t h a n coin when they begin t o understand
that t h e y c a n get the bars without a
premium.
Whether the new ruling will encourage exporters
to g o back t o coin rather t h a n t o bars i s a matter which
will a l s o h a v e t e b e studied.
are l o t s o f aspects
to b e a s k e d I
t e it.
I t is #
b i g problem;
there
I f there a r e a n y questions
would l i k e t o d e v e l o p t h e s u b j e c t
i n that
WEY.
Governor Young.
W h a t a r e t h e recommendations o f
the Governors! Conference i n reference t o this subject?
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Federal Reserve Bank of St. Louis
There ought t o be some method o f getting this information
24
to the public,
i f i t seems advisable.
T h e original
suggestion w a s that t h e Federal Reserve Bulletin could
handle it; b u t I
think I
can speak for t h e Board when I
say that t h e Board questions t h e advisability o f bringing this subject u p i n the Bulletin.
dons a r r i v e d a t b y t h e C o n f e r e n c e
Mr. Harrisan. .
Governor Young, b u t I
W e r e a n y conclus-~
i n reference
t o that?
There w a s n o formal action taken,
think i t was t h e consensus o f view
that there would b e some disadvantage i n trying t o reach
the public through t h e Federal Reserve Bulletin.
I t
makes t h e discussion o f i t a little more formal t h a n w e
thought would b e edvisable a t this time,anc i t i s sus-~
ceptible o f the construction, possibly abroad, t h a t i t
indicates a
difference o f opinion between t h e Federal
Reserve S y s t e m a n d t h e T r e a s u r y Department, w h i c h w o u l d
be unfortunate.
there
T h a t leaves the consideration whether
i s another v e h i c l e t h r e u g h w h i c h w e c o u l d r e a c h t h e
public o n this a n d s e e what would b e the resetion o f the
public i f the Treasury should make a change i n its present practice,
Governor Young.
A s i t stands naw, i t i s Just infor-
mation o n the subject f o r c u r study, e n d thene a r e n o
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Federal Reserve Bank of St. Louis
specific r e c o m m e n d a t i o n s f r o m t h e Governors.
Yr. Harrison... That is right, yes, sir.
Governor Young.
H a v e y o u anything e l s e o n your pro-
gram, Governor Strong?
Governor Strong.
O n this same subject, Mr. Chairman,
it i s c l e a r t h a t t h e m i n u t e t h e T r e a s u r y a d o p t e d a
practice o f deferred payments f o r geld, the Federal reserve banks would b e the cash market f o r gold, : & 6 s u c h
price a s t h e y fixed, I
a m not s u r e t h a t i t i s understood
what very radieal change has been made i n England i n the
last three years i n their practice. ‘Heretofore, t h e w a y
the Bank o f England mainteined i t s control a f the cash
market for gold, was b y having always a t hand a t the
mint a n amount o f gold t o be ceined for account o f the
Bank of England, s o that a t eny depositor o f geld a t
the m i n t w o u l d h a v e t o wait u n t i l t h e B e n k o f England's
orcer was filled, a n d the time required t o fill t h e Bank
of E n g l a n d o r d e r g a v e t h e b a n k c o n t r o l
ket f o r gold.
o f t h e c a s h mar-
T h a t has been changed b y the terms o f the
gold s t e n d a r d a c t ,
s o that n o w t h e o n l y authorized tender
of gold t o the mint f o r coinage i s that made b y the Bank
of England.
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Federal Reserve Bank of St. Louis
T h a t i s t h e l e w i n England now.
H e r e w e weuld
26
be adopting a
practice somewhat similar t o what t h e y
had i n Englend prior t o the adoption o f the gold standard
act o f May, 1 9 2 5 .
Governor Young.
D
to m a k e a n y inquirtes
on t h e p r o g r a m ?
o a n y members o f the Board care
a t a l l about a n y particular t o p i c
T h e r e w e r e o n e o r t w o topics, M r . M a r t i n ,
thet y o u d i d n o t t a k e u p yesterdey,
Governors! p r o g r a m .
Mr. Martin.
w h i c h deal with t h e
W i i l y o u t a k e t h o s e u p now?
T h e r e were three topics o n our pregram
which w e understood w e r e also o n the program o f the
Gevernors! Conference, a n d s o i n making o u r report t o the
Boerd y e s t e r d a y r e p o r t
o n those topics w a s deferred until
this Joint Conference.
Our C o n f e r e n c e w o r k s
i n this way: t h e t o p i c s a r e digs-
cussed b y the Conference, t h e n referred t o ¢ committee,
embodied i n a report based o n thet discussion, w h i c h report i s sent beck t o the Conference a n d approved o r
disapproved.
The first topic that was o n the joint program was
in regard t o this question:
S h o u l d deposits i n member
banks b y building a n d loan assoctations a n d mutual savings
banks b e classed a s amounts " d u e t e benks" within t h e
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Federal Reserve Bank of St. Louis
a7
meaning o f Section 1 9 a f the Federal Reserve Act, o r
should t h e y b e c l a s s e d a s d e m a n d o r t i m e deposits,
against which amounts "due from banks" cannot b e applied
in e r r i v i n g a t t h e b a s i s f o r a s c e r t a i n i n g t h e r e q u i r e d
reserve.
T h e Board would l i k e t o b e advised whether
in the opinion o f the Conference t h e seme rule should b e
extended t o include deposits i n member banks b y coopera~
tive banks, credit uniens and norris Plan banks."
That topic w a s discussed a n d referred t o a committee,
and I will a s k the chairman o f that committee, ir. DeCamp,
to m a k e t h e reprrt.
The Chairman, M r . DeCamp?
Mr. DeCamp. "With reference t o the topic just announced, . o u r c o m m i t t e e b e g s t c s u b m i t a s i t s r e p o r t t h e
following statement m a d e c t the Conference b y the Feder-
al Reserve Agent o f the Second District.”
I think i t i s fair f o r m e t o state that t h e committee adopted practically t h e memorandum submitted b y
the Agent f r o m the Second District.
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Federal Reserve Bank of St. Louis
"'The present practice o f permitting balances
due f r o m b a n k s - t o b e d e d u c t e d f r o m b a l a n c e s q u e t o
banks i n arriving a t net deposits subject t e re-
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Federal Reserve Bank of St. Louis
28
serve i s based o n the following paragraph o f Section
19 OF: the Act:
"In estimating the balences required b y this
Act, t h e n e t d i f f e r e n c e
o f amounts d u e t o a n d
from ether banks shall b e taken a s t h e basis
for ascertaining t h e deposits agsinst which required b a l a n c e s w i t h F e d e r a l r e s e r v e b a n k s s h a l l
be determined.!
"The Board has o n a number o f previous cecesions
ruled that t h e following a r e held n o t t o constitute
"banks! w i t h i n t h e meaning o f the Federal Reserve
Act.
"Mutual savings associations
"Building and loan associations
"Private bankers
"On the basis of existing rulings, therefore, i t
seems clear that deposits o f the character under
Liscussion c a n n o t b e c o n s i d e r e d
a s balances ' D u e t o
banks.!
"It is presumed that the Board wishes ta heve the
matter considered, however,
regardless
o f previous
o n its merits a n d quite
r u ings a n d the 1
aw.
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Federal Reserve Bank of St. Louis
29
"It t s u n d e r s t e e d t h a t t h e p a r a g r a p h q u o t e d
above f r o m t h e A c t i s t h e r e s u l t
o f a n attempt
to
make legal e a practice which h a d existed w i t h t h e
appreval
e f t h e Comptroller
to t h e e s t a b l i s h m e n t
o f the Currency prior
o f t h e Federal Reserve S y s t e m
under which banks h a d been permitted t o offset balences ' D u e t e banks! w i t h balances ' D u e from banks!
in c o m p u t i n g r e s e r v e r e q u i r e m e n t s .
T h i s prectice
probably was based o n the theory that balances d u e
from banks represented i n considerable p a r t items i n
process o f collection, t h a t i s uncollectea funds,
end ajsa to the extent that it aid net represent uncollected items, that the funds were available for
the liquidation o f deposits.
I
t m a y have b e e n
argued that s u c h balences ' D u e f r o m banks,! while
entitled t o consideration i n the matter o f reserve
requirements,
o u g h t y o t t o b e permitted
as a
de-
duction from gress deposits, b u t o n l y from balances
due t e banks o n the theery that i n times o f stress
there would t o a considerable extent b e a n offsetting
ef bank balences.
"In the light of present-day benking methods the
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Federal Reserve Bank of St. Louis
30
whole p r o c e d u r e
i s w e consicer u n s c u n d a n d anti-
quated, T h e r e i s n e basis i n fact warranting t h e
deduction o f balances ' D u e from banks! f r o m anything.
Deductions,
i f made a t all, should represent o n l y
items i n process o f collection o n the theory that
ne reserve should b e required o n deposits until t h e
deposit represents collectea funds, a n d s u c h deductions,
i f permitted, s h o u l d b e from gross deposits
rather t h a n balances ' D u e t o banks.'
nized, h o w e v e r ,
that such a
I t i s recog-
procedure w o u l d r e q u i r e
& change i n the Act which cannot b e a t ance accome
plished. Therefere, dealing w i t h the question i n
the light o f the Act a s i t now stands,
i t i s be-«
lieved that i t would b e inadvisable t e make a n y more
liberal interpretation o f the intention o f the Act
than i s necessary a n d inasmuch a s t h e present ruling
of the Board dees n o t permit t h e classification o f
depesits
o f t h e c h a r a c t e r u n d e r d i s c u s s i o n a s balances
due t o banks,
i t would b e better
t o l e t matters s t a n d
as they are rather than to further liberalize it.
"As t o whether such deposits should b e classified
as demand o r time depesits, t h a t obviously weuld have
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Federal Reserve Bank of St. Louis
Sl
to d e p e n d u p e n t h e c o n d i t i o n s u n d e r w h i c h t h e d e posit i s taken.
I f t h e b a n k h o l d i n g s u c h deposits
has t h e l e g a l r i g h t t e r e q u i r e t h i r t y days! n o t i c e
of withdrawal o r i f i n other respects the deposits
meet t h e test o f time deposits, t h e n t h e y should b e
so censidered, otherwise t h e y should b e considered
demand depesits."
Governor Young. Governor Strong, t h a t w a s a l s o o n
the program cf the Gevernors. A r e those the conclusions
that t h e Governors have arrived a t ?
Governor Strong.
W e arrived a t identically the same
conclusiong, without adopting a
report eof that character.
Mr, Martin. T h e r e i s e n e r e p o r t t h a t h a s a l w a y s b e e n
brought before the Joint Conference, a n d that i s the report o f the Committee o n Bank a n d Public Relations.
Heath i s t h e c h a i r m a n o f t h a t c o m m i t t e e a n d I
Mr.
will a s k
him t o make t h e report.
Mr. Heath, (reading):
"The amendment t o the Federal Reserve Act, which
provides f o r indeterminate charters f o r the Federal
Reserve B a n k s l e a v e s u s f r e e t o d e v i s e a
system
public relations program which m a y have f o r i t s a i m
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Federal Reserve Bank of St. Louis
32
the gradual development o f better understanding
of the System ever a
long period o f years. T h e dis-
cussion which centered about t h e passage o f this
amendment h a s m o r e o v e r i n d i c a t e d w i d e p u b l i c a p p r e ciation o f t h e v a l u e c f t h e F e d e r a l R e s e r v e System.
"Future Public Relations Program.
"In this generally favorable atmosphere i t becomes possible t e censider broadly t h e System's
public relations policy f o r coming years, a n d i t i s
proposed i n tris report t o sketch some o f the principles which m a y well determine t h a t pelicy a n d
some o f t h e m e t h o d s w h i c h m a y w e l l b e employed.
"pt the outset a few axiomatic principles m a y
be set forth which a r e basic t o Federal Reserve
public r e l a t i o n s w o r k .
"].
I t must tin no way savor o f propaganda.
A s
a public i n s t i t u t i o n t h e F e d e r a l R e s e r v e S y s t e m m u s t
always b e i n a
dignified position.
Propaganda
arouses h o s t i l i t y a n d disrespect.
"2, P u b l i c relations w o r k cannot b e done b y a n
oerganizea publicity staff, because-it would savor o f prepaganda;
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Federal Reserve Bank of St. Louis
33
such a staff would n o t have t h e neces-~
sary technical knowledge f o r dealing with
Federal Reserve questions;
public r e l a t i o n s
relations
is a
matter
o f personal
i n the last analysis a n d hence
must b e done b y people w h o a r e a n integral
pert o f e a c h R e s e r v e B a n k .
"3,
I t must not b e controversial. Controversy
arouses enmity a n d i s dangerecus.
"4, T h e r e s r e three general fields o f public r e lations w o r k i n the following order o f importance--
"(a) T h e member and nenmember banks.
T h e best
advertisement i s a satisfied customer.
T h e s e are the
"(b) Schools end colleges.
g
places where public opinion i s basically
formed.
"(e) T h e general public.
"Suggested methods for public relations work i n
these t h r e e fields, t o g e t h e r w i t h ©
swmmary o f what
the System i s now doing, a r e contained i n the follewing paragraphs.
"A, M e m b e r a n d Nenmember Banks.
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Federal Reserve Bank of St. Louis
34
"In every community i t is the banker and the
callege teacher w h o a r e t h e experts o n the Federal
Reserve System, a n d t h e banker's opinion carries
the weight o f personal knowledge.
customer
T h e banker i s the
c f t h e Federal R e s e r v e System,
w h e must b e
satisfied.
"There a r e three ways i n which the banker gets
his impression o f his Federal Reserve Bank,~ personal
contact, c o r r e s p o n d e n c e ,
a n d literature.
most important o f these is, I
B y far the
a m sure w e would a l l
agree, t h e personal contact.
“Personal Contact.
"me maintaining o f effective personal contacts
with t h e b a n k s
i n o u r districts
i s laborious,
essential t o a common understanding.
but
T h e three
usual methods e f contact are,--when w e g o t o see
the banker, w h e n h e c o m e s
t o s e e us, a n d w h e n w e
meet o n common ground a t conventicns a n d group
meetings.
"Visits t o Banks.
"of these three t h e most effective t s our visit
to t h e m e m b e r banker.
S u c h a
visit a t e n c e i n d i c a t e s
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Federal Reserve Bank of St. Louis
355
our regard f o r h i m a n d puts h i m i n the pesition o f
a courteous host. N o t h i n g c a n take t h e place o f
these visits.
I n this connection t h e following table
gives the customary report o f the visits made t o
banks i n the different districts.
I t indicates t h a t
during t h e year, f r o m September 1 , 1926, through
August 31, 1927, t h e member banks i n the Boston, N e w
York, Cleveland, a n d St.Louis districts w e r e visited
on the average twice y e a r ; t h a t t h e member banks
in the Philacelphia, Chicago,Dallas, a n d S a n Francisco
districts w e r e visited o n the average sbout once a
year, b u t that t h e member banks i n the Richmond,
Atlanta, Minneapclis a n d Kansas C i t y Cistricts
were visited considerably less t h a n once a year o n
the average. S o m e c f the Reserve Banks have t o
contenc w i t h t h e i s o l a t i o n
banks,
o f m a n y o f their member
b u t seme whose districts a r e most difficult
to cover have averaged a visit a year.
"VISITS T O BANKS
i‘hember o f S e p t . 1 9 2 5 S e p t . 1 9 2 6
Member Banks
t
o
a
t
o
Aug.31,1927
A u g . 1926 A u g . 1927
414
9
0
2
8
6
6
56
Sept. 1925 '
Number o f S e p t . ° % 9 2 5 S e p t . 1926
Member Ranks
t
a
t
o
Aug. 31, 1927 Aug. 1926 A u g . 1927
"New York
9
"Philadelphia
2
7
"Cleveland
7
8
"Richmond
5
"Atlanta
4
9
4 ;
3
7
6
8
6
9
"Chica go 1 5 . 9 0 4
“ay, Louis
5
9
1 , 2 8 3
923
1 , 8 1 8
8
0
5
4
1 , 9 6 3
8
6
9
1 , 6 6 1
1
2
5
4
5
1
1 , 9 4 5
1 , 2 1 9
7 1 , 8 4 2
1 , @ 8 5
"Mi nneapolis
7
4
1
1
3
5
1
2
)
"Kansas City
9
7
5
4
4
5
4
4
8
"Dallas
8
"San Francisco
1
8
1 , 1 3 4
6 7 3
"9,099
8
2
7
4 2 4 4 4 0
1 , 3 0 3
6
9
3
1 0 , 1 3 3
"In this connection note should be taken of the
fact that t h e total number o f visits t o banks this
year, numbering 10,000, w a s approximately 2,000
less t h a n i n t h e p r e c e d i n g year, w h i c h i n t u r n w a s
less t h a n the year before,
the v i e w t h a t d e c r e a s e s
Y o u r committees
i of
i n bank visits a r e o f
doubtful wisdom, a n d believes that t h e e i s n e
single method o f public relations w o r k which i s s o
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
37
fruitful o f better understanding a s visits t o
member banks.
"The quelity o f the visits i s fully a s important a s the quantity, a n d i n this cennection data
collected a t the suggestion o f Governor Norris a r e
of interest.
"Range o f Salaries:
T h e salaries paid i n the
eleven r e p o r t i n g b a n k s a r e s h o w n b y t h e f o l l o w i n g
figures o f number c f cutside m e n o r officers devot-
ing practically their entire time t o Bank Relations
work:
Range c f Salaries
$2,000 to $2,499
2,502 2 , 9 9 9
3,000 3 , 4 9 9
3,500 3 , 9 9 9
4,900 4 , 4 9 9
4,500 4 , 9 9 9
6,00@ 6 , 4 9 9
1
7
,
0
0
0 7,499
1
1 0 , 0 0 0
“
9
"Thus, o f the twenty outside men (other than of-
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Federal Reserve Bank of St. Louis
58
ficers) eight received $4,000 o r more, and twelve
less than $4,000 per annum.
I t apvears t o your
committee t h a t i t would b e wise t o work i n the
direction o f using y n this impertant work higher
Class m e n than appear t e b e indicated b y some c f the
paid.
is c l e a r l y t r u e t h a t t h e e f f e c t i v e n e s s
of
visits depends o n the character o f the person w h o
makes t h e visits,
and a
yisit
b y a n important
officer o f a Reserve B a n k will often d o more i n demonstrating t h e Reserve Bank's interest i n the member
bank, a n d more i n clearing u p difficulties, t h a n
several visits b y a bank clerk. A
number o f the
Reserve Banks have followed t h e practice o f sending
eut Deputy Governors,or e v e n t h e Governor o r
Chairman, f e r rapid trips t o visit a
number c f
member banks, a n d they have always reported most
faverable results.
"Fram a study off the answers received t e
questionnaire f r o m eleven banks sce far reporting,
the following comments a r e suggested:
"The organization o f the Bank Relations work
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Federal Reserve Bank of St. Louis
39
varies greatly i n the different districts.
I n
three, namely, Atlanta, Minneapolis e n d S a n
Francisco, t h e r e i s n o special department f o r the
work, i t being carried o n by officers a s their time
permits.
I n some districts i t i s the chief o r sole
work o f an officer supervising it, and i n others i t
appears t o b e a secondary consideration.
I n some,
both member a n d nonmember banks a r e visited.
in
others little attention i s given t o nonmember banks,
The frequency o f visits t o banks varies widely, s o m e
aiming t o c o v e r a l l b a n k s r e g u l a r l y t w i c e a
year;
some once a year, a n d cthers e v e n less.
"Bankers! Visits t e Reserve Banks.
"Second only to a visit t e the member bank itself
may b e r a n k e d t h e e n t e r t a i n m e n t
o f member a n d non-
member b a n k s
< A guést a l w a y s f e e l
at a
Reserve Bank.
more kindly toward his host.
T h e methods e f carrying
eut t h i s p l a n w h i c h h a v e b e e n f o l l o w e d
Banks,
a r e t h e stockholders!
meeting,
b y the Reserve
t h e small
group meeting, a n d the less formal entertainment
of visiting bankers,
"Bankers! Conventians e n d Group Meetings:
*
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Federal Reserve Bank of St. Louis
40
"Vie believe t h e general principle t e b e followed i s t h a t t h e R e s e r v e B a n k s h e u l d b e re~-resented
at e v e r y bankers!
conventien c r greup meeting
district, w h e n e v e r
i n the
i t i s a t a l l possible.
"Correspondence:
"Our m o s t f r e q u e n t c o n t a c t w i t h m e m b e r b a n k s i s
through correspondence, a n d from time t c time i t seems
worth while t o survey this correspondence t e see
that i t i s a s human a s possible a n d i s conducted
by peeple w h e deal intelligently w i t h preblems
which c o m e t c then.
"Printed Materia
"There-is such a lerge mass o f printed material
coming t o the desk c f every banker,
s o little o f i t
is read, a n d t h e preparation c f such material i s s o
time-consuming t h a t t h e principle o f selection needs
te b e cbserved i n deciding h e w much energy m a y b e
given t o a n y preject f o r t h e preparation c f a n article. F o r t u n a t e l y t h e System has m a n y friends w h o
write, a n d many sympathetic articles appear f r o m
their pens withoeut a n y solicitation f r e m the Reserve
Banks.
P e r h a p s t h e prime essential
i n this c o n n e c t -
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Federal Reserve Bank of St. Louis
41
ion is that each Reserve Bank sheuld have somecne
on its staff w h o i s qualified t o deal w i t h the writing fraternity,
t e provide material,
t o discuss
problems, a n d when necessary t o take his o w n p e n i n
hand.
M o s t writers a r e human beings a n d c a n b e reach-
ed b y precisely t h e same methods o f nersonal contact
as have been cited above f o r member banks. ,
"Scheels and Colleges.
"Some years a g o economics w a s taught i n small
deses o n l y i n colleges; t o d a y i t i s taught i n large
doses i n colleges a n d i n small doses i n high schools,
preparatory schools, a n d i n the American Institute
of Banking | a n c s i m i l a r o r g a n i z a t i o n s .
Thousands
of students w h o g r a d u a t e f r o m c u r s c h e e l s a n d c o l l e g e s
each year have been innoculated with some kind o f idea
abeut t h e F e d e r a l R e s e r v e System.
ever a
W h e n o n e considers
term c f years t h e influence e f these people o n
public o p i n i o n , t
i becomes clear that here i s a point
at which t h e “ystem m a y well spend censiderable energy t o s e e t h e t t h e inneoeulation g s p r o p e r l y dene.
The f o l l o w i n g m e a n s
o f influencing t h e teaching o f
banking i n scheels a n d colleges a r e suggested.
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Federal Reserve Bank of St. Louis
42
"1. Textbooks. Officers o f the System have
already d o n e m u c h i n t h e p r e p a r e t i o n
e f textbook
material i n the publication o f the Richmond
letters,
and bocks b y Harding, Gcldenwesier, a n d
Burgess.
"2. Discussiong i n professional journals.
Teachers o f economics r e e d a n d get m a n y
c f their
ideas f r o m these journals.
H e r e t h e preblem i s t o
see that there a r e always i n the System
a number o f
officers qualified t o write acceptably a n d
t o deal
with e c o n o m i c s a n d writers.
E v e r y Reserve B a n k
should have someone w h o talks t h e language o f
the
economist,
c a n h e l p i n t h e w r i t i n g o f articles,
and
perhaps write a n d speak himself.
"3. Visits t o the Reserve Banks. A
number
of the Reserve Banks have h a d excellent results
from
inviting college a n d sechonl classes t o visit t h e
Reserve B a n k buildings,
t o see t h e Federal Reserve
film, a n d have t h e operetions explained
b y a guide.
In this w a y theusands o f students h a v e b e e n given
some definite conception o f what t h e Federal Reserve
System is.
T h e Federal Reserve f i l m has proved par-
ticularly valuable.
I t has also proved valuable t o
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Federal Reserve Bank of St. Louis
43
have some simple literature about t h e System t o
distribute.
"General Public.
"There a r e t w o principal ways i n which t h e
Reserve Banks c a n maintain s e m e centact w i t h t h e
Beneral public.
T h e f i r s t i s t h r o u g h t h e press,
and t h e p r o b l e m h e r e i s n o t t e c r e a t e i n t e r e s t f o r
thet e x i s t s a l r e a d y ,
b u t t o make available
to
writers facts a n d explanations a s t e the System's
operations.
T h e prime necessity a t this point i s
that each Reserve B a n k shell heave some officer
whe i s qualified t o deal with journalists a n d
writers,
a n d who has authority t o talk with them
freely, theugh not f o r qucetation.
"The second means a f contact with the public i s
through speaking a t such organizations a s rotary
clubs, c h u r c h e s , e t c .
W h e n e n e considers t h e
small proportion o f the population thet can b e
reached through speaking, t h e efforts m a y seem
futile, a n d yet i t remains true, a s i t elways h a s
been and a s i s recognized i n every political campaign, t h a t t h e p u b l i c a d d r e s s
L
i s one o f the best
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Federal Reserve Bank of St. Louis
a4
methods o f influencing public thought.
T h e people
who come t o such m e e t i n g s e
r
a likely to be the
leaders
i n a n y community,
a n d w h e n a n important
Federal Reserve officer goes t o such a meeting half
of his object i s achieved b y his v e r y attendance,
because
h e has shown himself r e a d y t o take people
into his confidence a n d has n e t remained aloof.
For
these reasons y o u r committee believes t h a t e a c h Reserve B a n k should have a n organized p l a n f o r providing speakers f o r meetings a n d that those sneakers
should be, a s far a s possible, responsible officers
of t h e R e s e r v e B a n k s w h o a r e a b l e t o s p e a k w i t h a u thority.
"The following figures show the number of
speeches r e p e r t e d
b y each Reserve B a n k during t h e
year, September 1926 threugh August 1927.
"SPEECHES MADE.
"Sept. 1925
to
"Boston
"New York
"Philadelphia
S e p t . 1926
t
o
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Federal Reserve Bank of St. Louis
45
"Sept. 1 9 2 5
S e p t . 1926
to
t
Aug.1926
"Cleveland
4
"Richmond
3
1
A
o
u
g
. 1927.
o
l
6 8
"Atlanta 5
5
"Chicago
2
3
1
5
"St.Louis
3
2
e
t
6
5
2
"Minneapolis
6
"Kansas City
"Dallas
2
3
"San Francisco
5
3
S
i
"Total
"The Program i n Summary.
"In order to summarize the foregoing the committee suggets t h e adoption b y this conference, a n d
by each o f the Federal Reserve Banks,
o f the follow-
ing minimum program o f bank a n d public relations:
"Banks and Public Relations Minimum Program
"Banks.
"1.
A t least one visit a year t o each
member bank.
"2. R e p r e s e n t a t i o n a t bankerst conventions,
46
or group meetings i n the district,
whenever possible.
"Schools a n d Colleges.
se S a m e o n e
o n the staff o f e a c h Reserve
Bank whe talks t h e language o f the
economist a n d maintains contact w i t h
scheols, colleges, a n d professional
literature.
A plan f o r visits b y college classes
to the Reserve Bank--including t h e distribution o f suitable literature.
"The General Public.
in0 S o m e o n e o n the staff o f each Reserve
Bank who i s available f o r contact
with jeurnalists a n d writers.
An organized p l a n f o r providing
speakers for meetings."
The Chairman. G o v e r n o r Strong, that wes also o n the
Governors! program.
H a v e y o u something t o report o n that?
Governor Strong.
our program,
M r . Chairman,
i n connection w i t h a
w e had this topic o n
request t h a t h a d b e e n
made f o r a circulation cof a questionnaire u p e n t h e reserve
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Federal Reserve Bank of St. Louis
47
banks, w h i c h was prepared a n d has b e e n circulated, a n d
I believe w a s also delivered b e the Cenference o f Chairmen, a n d postpened consideration o f this report until
the Jeint Conference.
Governor Young.
A r e there a n y comments f r o m the
Governors o r Agents o n the report i n the w a y o f approval
or disapproval?
Governor Strong. I think i t is a n estimable report
and should b e adopted, ir. Chairman.
Governor Seay.
I t i s a n extremely fine report,
in
my personal judgment.
Governor Young. T h i s Conference i s composed o f the
Agents a n d the Governors, I
understand.
Governor Talley. I mave the adoption of the report,
Mr. Chairman.
Gevernor Young.
express myself a
I f t h e B e a r d i s i n this I
little bit.
want t e
I f i t i s not I will s t a y
out o f it.
Mr. Newton ( e f Atlanta), I
think w e would like t o
hear f r o m you, Governor.
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Federal Reserve Bank of St. Louis
Governor Y o u n g . I
have w a t c h e d t h i s m a t t e r
bank r e l a t i o n s v e r y carefully. I
of
think i t i s a
48
question that has t o b o approached v e r y carefully.
This strikes m e a s a very elaborate pregram.
my o w n experience i n Minneapelis I
many t h i n g s
From
would s a y there a r e
i n i t t h a t w e c o u l d n o t c o m p l y With,
even i f w e could, I
or
do net know that i t would b e advis-
able.
I have h a d a little experience i n public relations
work f o r myself,
and I
d i s c o v e r e d this, t h a t i t t o c k a
great deal o f time; t h a t is, i t took m e a goed deal o f
time t o prepare a
talk, a n d I did not deliver i t par-
ticularly well, a n d then after i t was delivered i s when
the r e a l w o r k started.
I t required usually t h i r t y t o
Sixty days o r more t o explain what I
was trying t o s a y
to them.
I question i n m y own mind whether this b a n k relations w o r k i s the best thing o r not, t h a t i s such a n
elaborate program.
T h e m e n that y o u usually s e n d c u t
in the country a r e pretty clever men, g o o d talkers a n d
make a
good impression, b u t what the. country banker wants
to know i s c a n h e get twenty-five o r fifty thousand dollars a t a
certain p e r i o d
answer that.
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Federal Reserve Bank of St. Louis
o f theyear,
a n d your m a n cannot
M a n y technical questions c o m e up. i
Our
49
open m a r k e t c p e r a t i o n s s r e b e g i n n i n g
portant subject,
t o be a
very i m -
e v e n a w a y b a c k i n t o t h e country.
I t
is semething new, something t h e y d o not know about;
is n e w t o us.
it
I t i s extremely h a r d f o r m a n y people a s -
seciated with the business t o explain i t properly. I
do
not know that y o u c a n enter i n t o a great campaign t o
carry out all those things.
Now the report i s that Minneapclis h e s n o t visited
its m e m b e r banks. T h a t i s true.
the difficulties a r e many.
T h e d i s t a n c e s a r e great,
W h e n w e d i d visit t h e banks
it was n o t f o r relations purpeses a t all; i t was f o r other
purposes,
B u t regardless o f whether w e have visited
those banks o r not, t h e y have visited us, a
great major-
ity c f them have, a n d t h e officers c f the bank have b e e n
instructed t o give their time t e these gentlemen w h e n
they came in. I
think they have dene that very well.
I suppose y o u c a n a r r i v e a t c c n c l u s i c n s
b y results,
De people f r o m the Ninth District understand t h e Federal Reserve System a s well a s the people i n New England
understend i t ? I
a m inclined t o think that t h e y do,
from a c t u a l experience.
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Federal Reserve Bank of St. Louis
Now, I
have n o t m a d e u p m y m i n d e n this, b u t I :
50
have just g o t a kind o f feeling that w e are going a little bit t o n far, maybe,in publicity i n this banks relations work.
Governor Harding. M a y I interrupt y o u a moment?
Governor Young. Y e s , G o v e r n o r Harding.
Governor Harding.
have a
M r . Chairman a n d gentlemen,
we
very large country with conflicting interests, d i f -
ferences o f opinion, different types o f peophe, differént
types o f bankers.
two districts,
S p e a k i n g f r o m m y c w n experience w i t h
t h o s e t w o with which I
Atlanta a n d Boston, I
a m mest familiar,
want t o s a y that methods w h i c h a r e
effective i n the Baston District a n d beneficial i n the
Boston District would be ineffective and harmful i n the
Atlanta District.
(Whereupon discussion followed which t h e reporter w a s
directed n e t t o p l a c e u p o n t h e record.)
Governor Wellborn.
M r . Chairman a n d gentlemen, I
not e x p e c t e d t o s a y a n y t h i n g u p o n t h i s subject,
had
b u t since
Atlanta h a s b e e n brought i n t o t h e picture several times
inthe remarks made I would like to say thetVERe first
seven o r eight years o f our work i n the bank w e decided
that there was n o necessity f o r having a
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Federal Reserve Bank of St. Louis
public relations
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Federal Reserve Bank of St. Louis
Sl
committee e f this kind.
B u t some o f our diréctors had-
the idea that i t would b e a very fine thing a n d w e put
it t o trial i n 1923.
W e employed four o r five m e n t o
go e@round a n d v i s i t t h e banks.
district w a s visited.
E v e r y b a n k i n our
W e employed a n outside m a n who
took charge o f it. T h e result was that all t h e y did
was t o g o around a n d spend a lot o f money a n d seme o f
have
them got jobs that they would not/otherwise had. B u t
the burden o f the questions b y the member banks w a s
"Why don't w e get a n exchange o n our checks?," and,
as Governor Harding said, “Why don't they pay us inter-
est on deposits? T h e y make lots o f money, they use
our money,
a n d w h y den't t h e y p a y u s f o r £¢-"
I think the report shows that that w a s t h e burden
af their talk.
W e discentinued the work but i t is
bobbing u p a g a i n now.
last meeting,
G n e o f o u r directors,
a t the
s a i d h e wanted u s t o g o inte this subject
and make a report.
Now, I
made a talk eon this subject several years
ago a n d one c f the members o f the Federal Reserve Board
criticised m e pretty severely f o r t h e pesition I took.
That would n o t deter me, o f course, f r o m speaking m y
52
ming w h e n e v e r I
thought
i t w a s proper. i
on t h e subject, a f t e r M r . J a y h a d m a d e a
spoke t h e n
very elaborate
report, a n d I had a perfect right t o d o it. I
real sentiments,
spoke m y
a n d that w a s t h a t t h e public r e l a t i o n
work, s o far a s our district w a s concerned,--I d i d nat
speak f o r o t h e r districts; I
was s p e a k i n g f o r m y o w n
5
district--was a l l f o l d é r o ljust
k imerely a matter o f
giving people jobs.
W e d i d g o inte this w o r k same three
r four years ago, a n d I might s a y that i t was gotten
up e x p r e s s l y t o g e t s o m e b o d y a
Governor Fancher.
job.
M r . C h a i r m a n a n d gentlemen,
this
proposed p l a n i n the summary eon the program here i s about
the p l a n t h a t w e h a v e h a d i n o p e r a t i o n f o r s e v e r a l y e a r s
in our bank. T
admit that different conditions exist
in t h e d i f f e r e n t d i s t r i c t s n o w , b u t I
think a t t h e c u t s e t
thet t h e conditions w e r e very much t h e same,
twe respects,
i n all districts.
W
{ n ene o r
e aii h a d discontent-
ed members, s e m e o f whom felt that t h e y had been coerced
inte membership.
S e m e o f them were very sore about it.
Some o f t h e m w e r e o p e n l y s o r e a b o u t i t a n d d i d a
a
e
a l l that sort o f thing.
lot o f
I t was under those
conditions t h a t w e gave eonsideraticn t o the organizing
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Federal Reserve Bank of St. Louis
53
of the Member Banks Relations Department, with the first
ohject i n view o f selling t h e Federal Reserve System t o
the member banks, because there w a s s u c h great misunderstanding a n d such great dissatisfaction i n the minds o f
some that d i d not know abcut it. T h e y wanted interest o n
their balances a n d cther things. T h e r e f o r e i t was very
interesting t a follow the reportswhich the men who visited the banks made, a n d when they went around t h e second
or third time, i t was interesting t o note the change i n
the attitude o f some o f the banks.
W w e found a t first
that there were b a n k s s
o hostile t h a t o u r representative
from the Bank Relations Department c o u l d n o t g e t into t h e
bank.
T h e y were g i v e n v e r y discourteous treatment.
That h a s g r a d u a l l y b e e n b r o k e n down, a n d w i t h a
exceptions,
w e have a
very f e w
very friendly attitude o n the
part o f member banks a n d ‘they are very much more intelligent.
N o w , w i t h o u r m e n whe visit t h e banks,
i t has
been t h e i r p o l i c y t o t r y t o visits, t h e b a n k s t w i c e e a c h
year, e n d i n t h e reports w h i c h t h e y m a k e t o us, a n d
which sre summarized and come o n my desk weekly, there
is a mass o f very valuable infermation w i t h regard t o
particular l o c a l i t i e s
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Federal Reserve Bank of St. Louis
i n t h e district.
T h a t aids u s
54
very materlally i n granting credit t e the banks.
It
aids u s i n knowing t h e condition o f our member banks.
It informs
u s i f there i s a
condition t h a t i s n o t w h o l l y
satisfactory o r a s t o c h a n g e d conditions,
o r a s t o the
trec o f business e i t h e r u p o r d o w n i n deposits
o r loans.
a great variety o f information o f a great d e a l o f value
comes t o u s from o u r members i n our Bank Relations D e partment.
Therefore I
our operations
would regret v e r y much t o see
i n any way curtaileg f r o m the w a y they
are being conducted a t the present time. I
think they
are o f great value, a n d I think f o r t h e money that i t
costs that w e are getting splendid results.
Governor Y o u n g .
Dees
a n y member
say anything o n this subject?
o f the Board care
D i d not someone make a
motion t e edopt this report o r approve i t ?
Governor Talley. I
port. H o w e v e r ,
made a
motion t o a d o p t t h e r e -
i n view o f the discussion here, I
think
that motion might b e stated that t h e report b e adopted
in principle, t h e action having f o r its base a desire
to promote t h e education o f the public a n d o f the
momber b a n k s
a s t o real purposes a n d intent a n d atti-
tude o f t h e F e d e r a l R e s e r v e B a n k s t o w a r d t h e m e m b e r s h i p
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Federal Reserve Bank of St. Louis
t o
| towards t h e public.
Governor Young.
D o y e u make that a s a motion?
Gevernor Talley. Yes, sir.
Gevernor Wellborn. I
will second it.
Mr. James. Before y o u vut t h e question, Gevernor-Governor Young. T h e Board i s net voting o n this.
Mr. J a m e s .
T h a t i s what I
was g c i n g t o ask, w h e t h e r
or n o t a c t i o n h e r e w o u l d b e c o n s i d e r e d
a s approval
b y the
Federal R e s e r v e B o a r d .
Governor Young. No.
Mr. James.
o r t o authorize t h e banks t o g o ahead
and carry o u t t h e program.
Governor Young.
ethers e r e present.
No.
T h e Board cannot vote w h e n
T h e Beard will take t h e vote o f the
Conference h e r e a n d d e t e r m i n e
i t at a
later d a t e ,
Governor Strong. ‘ I de net recall whether a n y language a p p e a r s
i n the repert suggesting t h a t t h e appli-
cation o f t h e p r i n c i p l e s s e t o u t i n t h e r e p o r t s h o u l d b e
mocified where necessary t o meet varying conditions i n
the different districts.
Governor Y o u n g . I
thought t h a t G o v e r n o r Talley's
resolution c o v e r e d that.
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Federal Reserve Bank of St. Louis
56
Governor Strong. I f that i s s o it might cover the
objections t h a t otherwise would arise t o voting. I
have
gained t h e impression, f r o m what has b e e n said here, t h a t
there a r e t w o points o f view.
the System among members
o n e i s that opposition t o
S . 2 St1il exists, that. that
opposition will gradually d i e o u t a s these critics d i e
off.
T h e other point o f view i s that t h e y c a n b e con-
vincec o n these questions, s u c h a s has occurred i n the
Boston District. I
had hoped thet t h e remarks m a d e
here &bpout t h i s c o l l e c t i o n c h a r g e o r e x c h a n g e c h a r g e a n d
the payment o f interest, a n d s e on, d o not indicate that
there i s a n y intention o n the part o f the System t o sidestep t h o s e q u e s t i c n s
i f there i s a n y opportunity
vince these people. I
t o con-
mean, t n let t h e situation con-
tinue t o smoulder, w i t h n o effert b y legical argument
and: d i s c u s s i o n t e o v e r c o m e i t , s e e m s
in spy istrict, irrespective’
Gevernor Young. I
t e me a
mistake
o f .cenditions.
c a n s a y t o you, G o v e r n o r
that i n the Ninth Federal Reserve District there i s
still t h i s o p p o s i t i o n
Perheps
w e are n o t convincing enough
the Nerthwest,
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Federal Reserve Bank of St. Louis
t o t h e F e d e r a l R e s e r v e System.
i n our talks
b &u t y o u c a n n e t c h a n g e t h e i r minds.
in
W
e ’
57
would b e glad t o have some other Federal reserve bank,
through i t s public relations men, t o change their minds,
if t h e y c a n b e changed.
Gevernor Strong. I
de not think there i s the slight-
est q u e s t i o n b u t t h e t t h e b a n k e r s
i n this c o u n t r y ,
1 h the
subject i s properly presented, c a n be convinced o f the
fact that payment o f interest o n their balances w i t h t h e
reserve b a n k s w o u l d b e a
Governer Young. I
calamity.
had reference t e par collection
of checks a n d the question o f exchange.
Governor Strong. I
admit that i s more difficult.
Governor Young. M u c h more.
Mr. James.
tions
O n this matter o f variation o f condi-
i n districts,
a n d o u r pesition a s t o parring checks,
isn't i t true that i n the districts where this question
is continuously agitated t h e customer o f the bank i s
not called upen to bear this burden t o any large degree?
in ether words, t h e depositing customer o f the small
country bank,
h e does n o t have t o p a y that exchange w h e n
he makes his deposit i n the bank, because that deposit
is usually t h e proceeds o f same sale o f commodities, a n d
if i t i s not paid for i n actual c a s h i t i s paid f o r i n a
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Federal Reserve Bank of St. Louis
58
draft o r a
check d r a w n o n some,
city, a n d t h e c o u n t r y b a n k e r
w e will say, reserve
i s v e r y g l a d toa accept
that a n d p u t i t t o h i s c r e d i t s t par.
H e does n o t
suffer f r o m that, t h e customer himself,
i n these dis-
tricts, p a r t i c u l a r l y t h e A t l a n t a D i s t r i c t a n d t h e
Minneapolis D i s t r i c t ,
as I
view i t .
H e i s n o t interested.
The jebber a n d t h e manufacturer a n d s e e n who i s selling geods i n that district h a s b e e n i n the habit o f
absorbing these exchange charges, a n d s o w e get again
an illustration o f what Governor Harding brought o u t
of the difference i n conditions i n the different districts.
I n other words, t h e y talk a different lan-
guage altogether i n New York, a n d i n many sections o f
New England | and i n the industrial centers o f Cleveland,
and s o on, t a what t h e y d o i n the rural sections o f the
Ninth, T e n t h a n d Eleventh Districts,
t o s a y nothing o f
the Atlanta District a n d t h e Lighth District.
That
has b e e n m y experience.
Governor Young. I
wonder i f w e c o u l d h a v e G o v e r n o r
Talley's r e s o l u t i o n repeated.: I
think t h a t d o e s n o t
bind a n y e n e d o w n t o a n y p a r t i c u l a r p r o g r a m ,
nor to
this program a s outlined, a n d o f course t h e Board i s
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Federal Reserve Bank of St. Louis
net v o t i n g o n t h e question,
Governor Harding. Before putting h i s reselution I
would like t o suggest a
little modification o f it. N o t
only have w e the psychological differences
ferent districts, b u t w e have a
i n the ¢@if-
vast difference i n ter-
ritorial a r e a a n d i n d e n s i t y o f population,
a n d all that
kind o f thing. For instance, i n the Boston District a
man visits t h e bank twice a year, a n d h e goes around i n
an automobile, a n d h e does n o t have t o worry about
railroad schedules a n d p a y railroad fare a n d all that
sort o f thing a s does t h e m a n i n the iinneapelis District,
where physical conditiens a r e s o different.
Governor Wellborn. T h e Atlanta District runs f r o m
& pert o f Tennessee t o New Orleans.
Governor Harding. Yes, a n d take the Texas district.
ix o r seven years a g o I was gring t o St. Angelo, a n d I
got t e Sweetwater a n d h a d t o change trains.
El P a s o c a m e o n there a n d I
P e o p l e from
talked w i t h s o m e o f t h e m a l l
the w a y t e St. Angelo. T h e r e were t w e cattle m e n sitting
opposite m e . A p p a r e n t l y t h e y w e r e f r i e n d s a n d chuns,
because t h e y talked very intimately, a n d o n e o f them ex@lained
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Federal Reserve Bank of St. Louis
t o me, " J o h n i s a
neighbor
c f mine.
O u r places
60
are o n l y seventy miles apart."
big d i f f e r e n c e
S e yeu see thereiks a
i n physical e e n d i t i e n s
a s well a s i n
psychological eenditions.
I suggest t h a t i f Governor Talley would amend his
motion t e the effect that this report i s approved i n
principle,
b u t t h a t i n carrying i t inte effect d u e con-
sideration should b e given t o the difference i n psychology a n d p h y s i c a l conditions i n the various districts,
I think i t would cover t h e question.
Governor Talley.
T h a t i s whet I
was intending t o
convey, Governor Harding, t h a t t h e basis o f i t i s psychological entirely.
Chairman, I
I t i s nothing b u t psychology.
Mr.
would like t o have five minutes o f f the record
on t h i s m a t t e r
if I
Governor Y o u n g .
may.
A l l right;
proceed,
G e v e r n o r Talley.
(Whereupon discussion followed, w h i c h t h e reperter
was directed net t o place o f record.)
Mr, Martin.
M r . Chairman a n d gentlemen, I
woulé
just like t e s e y that t h e precf o f the pudding i s i n the
eating.
T h e bank relations w o r k has b e e n satisfactory i n
the Eighth District. W h a t ir. Fancher has said, a n d has
so well said, h a s b e e n proven i n o u r district, a n d I only
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Federal Reserve Bank of St. Louis
61
want t o emphasize this vhase o f the work, w h i c h i s a
recent development. I
think t h e t t h e r e p o r t s
o f the
banks r e l a t i o n s m e n a r e o f g r e a t h e l p t e G o v e r n o r B i g g s
and myself a n d t h e o t h e r s w h o m u s t p a s s o n discounts.
It gives u s t h e situation i n the territory;
i t tells u s
what t o do, a n d helps i n the supervision o f the bank, s o
much s o , t h a t i n t h e o f f i c e r o u t i n e , a t t a c h e d
reports
t o the
o f examination a r e attached t h e reperts
bank relations men.
c f the
T h e report o f examination c a n b e
read more intelligently w i t h t h e report o f the bank relations m e n i n frent o f us; a n d when w e g o into t h e discount committee, a n d I know Governer Biggs will bear m e
out i n this p a r t i c u l a r o n e question,
t h e b a n k relations
report h a s eften e n a b l e d u
s t e come t o a conclusion which
otherwise v e might have book fearful e f arriving at.
Governor Seay.
M a y I
have j u s t o n e word, lir.Chairman?
Governor Young. Y e s , Governor Seay.
Governor Seay. I
have e x p r e s s e d t h e o p i n i c n t h a t
this i s a n extremely fine report. I
It s e e m s c l e a r l y understoed, h e w e v e r ,
wish t o repat it.
t h e t conditions
vary i n the different districts, a n d that different
metheds m u s t b e fecllowed.
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Federal Reserve Bank of St. Louis
62
This report lays a
personal visitation. I
greet deal o f emphasis u p e n
would like t e tllustrate that.
In the previous y e a r w e made eight hundred o d d visits t o
eur m e m b e r banks.
fifty odd.
L a s t year w e made e n e hundred a n d
T h a t variation
brought a b c u t
t n the number
b y p r a c t i c a l cenditiens.
ous f a i l u r e s a m e n g t h e b a n k s
o f visits w a s
T h e r e were numer-
i n the t w o Southern States
ef our district, c h i e f l y among t h e nonmember banks,
it w a s f e u n d t h a t t h e v i s i t s
o f c u r m e n were, u n d e r
circumstances a n d i n some localities, misconstrued,
we had t e abandon them.
There i s common agreement, I
sirable
believe, t h a t i t i s de-
t o disseminate proper information througheut c u r
districts w i t h respect t o the cperations o f the Federal
Reserve System.
I n the earlier days e f t h e days t h e r e
were some studious minds i n eur bank, a n d i n considering
the subject t h e y arrived a t the cencluston t h e t more
people could b e reached b y written communication t h a n
could b e reached b y visiting a n d public speaking. T h e result o f that was t h e boekjyet which t h e Richmend B a n k
prepared,
t h e preparation
o f certcin letters, p r i m a r i l y
for students o f econemics a n d banking i n the cclleges,
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Federal Reserve Bank of St. Louis
63
and these bocks a n d papers a r e n e w i n use i n more t h a n
ene hundred colleges o v e r t h e country.
I would therefore l i k e t e move, a s a substitute,
that t h e report b e accepted f o r t h e record a n d for
study b y the Federal reserve banks.
It cannot
b e f e l l o w e d o u t i n e v e r y r e s e r v e district.
Mr. Wellborn. I
will second t h e substitute.
Governor Harding.'I t h i n k w e would b e interested i n
hearine f r o m G o v e r n o r Bailey.
H
e has a
big district
down there.
Governor Bailey. M r . Chairman, I
want t o g o off
the r e e o r d .
Governor Young. V e r y well, Gevernor. P r o c e e d .
(Whereupon discussion followed which the reporter
was directed net te place of record.)
Governer Young. Governor Seay, I
think yours w a s
the last motion.
Governor Wellborn. I
Governor Talley. I
of Governor Seay's.
I
seconded his motion,
will withdraw m y motion i n favor
t i s perfectly satisfactory t o me.
Governor Young. I had assumed that his was a n amendment
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Federal Reserve Bank of St. Louis
o r substitution
f o r t h e other.
64
Governor Talley.
W h y not withdraw mine entirely
and c e n s i d e r h i s ?
Governor Young.
V e r y well.
(Whereupon t h e mction, having been d u l y seconded,
was unanimeusly carried.)
Governor Young. N o w , M r . Mertin,
topic, I
y o u have e n e more
believe
Mr. M a r t i n .
W
e have o n e more topic here, w h i c h
I understand w a s also o n the program c f the Governors!
Conference,
in a
semewhat m o d i f i e d f o r m , p e r h a p s .
That
topic i s
"Whether better safeguards should b e rut
around savings deposits, t i m e deposits a n d
certificates o f deposits i n order t e prevent t h e conversicn c f demand deposits i n t o
such d e p o s i t s
s o a s t o escape reserve r e -
quirements."
I will ask vir. Curtiss, t h e chairman o f that committee,
t o read that report.
Mr. Curtiss. "Mr. Chairman and members o f the Conference,
y o u r c o m m i t t e e h a s g i v e n t h i s m a t t e r v e r y ecare-
ful consideration, beth from the s t a n d p o i n tf
o the
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
65
provisions
o f t h e Federal Reserve A c t a n d t h e Board's
regulations.
T h e conclusions t h a t t h e committee h a s
come t a are that t h e regulations a s n o w drawn appear t o
go a s far i n restricting these accounts a s i t i s pes-~
Sible t e g e under t h e l e w a n d i t i s doubted i f a n y further r e s t r i c t i o n s c o u l d b e m a d e w h i c h w e u l d b e h e l p f u l
without a change i n the law. P e s s i b l e changes i n both
the regulations
a n d t h e l a w which might b e considered a r e
the follewing:
"(1) S a v i n g s Deposits: T h a t all withdrawals
from savings deposits i n excess c f some specific
sum, for instance, $2,500 o r $5,0009,0n any one
account during a period o f thirty days c a n b e made
enly e n a
written n e t i c e
e f t h e depositor a n d i n
no case c a n such withdrawal b e made i n less t h a n
thirty days. W h e n s u c h savings deposit i s subject
threugh s u c h n e t i c e
t a withdrawal
i n less t h a n
thirty days i t shall be classed as a demand
Cepesit,"
You w i l l n o t i c e t h a t a l m o s t a l w a y s b e f c r e w e h a v e
been considering the size c f the cepesit. This gets
and
away from that simply brings up the question of the
66
size o f the withdrawal.
I n other words,
i t makes i t
less liable t e withdrawal.
(2) Certificates o f Deposit: Certificates o f
deposit unless payable eat some specific t i m e after
thirty days shall b e classified a s demand deposits,
or unless a
certificate o f depesit bears o n its
face t h e r e q u i r e m e n t t h a t t h e h e l d e r
i s required
to
give t h e issuing b a n k notice o f presentation o f
net less t h a n thirty days before presentation, a n d
when such certificates a r e through s u c h notice
payeble within thirty days t h e y shall b e classed a s
demand deposits.”
This deals t o a large extent w i t h t h e classification
of time deposits, a n d i f you will notice i n the l a w
the r e s e r v e s a r e a l w a y s
i n connection w i t h t i m e deposits
and d o not refer t o savings depesits o r certificates
of depesit.
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Federal Reserve Bank of St. Louis
"That t h e r e h a s b e e n c o n v e r s i e n
c f demand ae-
posits i n t e savings deposits t h e r e apparently i s
evidence f r o m e v e r y d i s t r i c t a n d i n s e m e c a s e s
violation
Board.
o f t h e regulations
in
o f the Federal Reserve
I t is, therefore, suggested that a l l exami-
67
ations c f naticnal banks a n d state member banks
should Giselose i n some detail t h e character o f depesits e f t h i s character,
t h e pelicy o n which t h e y
are handled a n d some simple classification a s t o
amounts."
The last t w o are just suggestions f o r consideration,
and inasmuch a s the Governors! Canference h a s already
informed m e that t h e y are recommending n o change a t the
present t i m e i n the Beardts resulations, I
assume t h e
Governers a r e i n agneamenor w i t h the cenclusiens o f the
agents, Governor Strong?
Governor Strong. I
think s e generally.
W e feel
thoreughgcing treatment c f the propositien sheuld
be hac without a n amendment t o the act.
Mr. Curtiss. T h a t i s practically t h e conclusion e t
which the Agents arrived.
Gevernor Streng.
I t i s best t e leave t h e regulation
i t was a n d t r y t e e x e r c i s e s o m e c l o s e r s u p e r v i s i o n
ef unscund practices, where t h e l a w permitted.
Mr. Curtiss. T h a t i s what c u r report means.
Governer Young. I
would like t e cpen u p those t w o
suggestions f o r discussion,
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Federal Reserve Bank of St. Louis
b u t t h e t i m e i s shert. I
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Federal Reserve Bank of St. Louis
68
think i t i s b e t t e r t h a t w e t h i n k t h e m o v e r b e f o r e w e d o
discuss them.
H a v e y o u anything else?
Mr. Martin.
I n our report o n the conference tno the
Federal R e s e r v e B e a r d t h e c t h e r d a y , s e m e q u e s t i o n c a m e
up a s t o t h e crest c f t h e e x a m i n a t i o n
c f member s t a t e
benks being o t t e f line with t h e crest o f examinaticn c f
similar national banks.
W e have locked inte that a n d
we have found o u t that really t h e Board has decided that
auesticn, b e c a u s e I
have h e r e a
January 24, 1924, X-3954,
copy o f a
letter d a t e d
i n which i t i s said b y the
secretary:
"TJ a m directed t e advise y e u thet t h e Federal
Reserve B o a r d c e n c u r s
i n the following resolutirn
adopted a t the recent conference c f Federal Reserve
Agents."
That was prior t c this letter.
A m o n g t h e suggest-
fons contained i n the resolution o f the Federal Reserve
Agents w a s t h e fellewing,
i n w h i c h t h e B o a r d concurred,
as I understand it:
"tWe believe i t t o b e essential that t h e closest c o o p e r a t i o n e x i s t b e t w e e n t h e e x e c u t i v e d e pertments
e f Federal R e s e r v e B a n k s a n d t h e S t a t e
69
Banking Commissioners.
W e alse believe
. matter o f geod faith with c u r State member b a n k s a n d i n o r d e r t o b e p r e p a r e d
t e extend
credit intelligently, credit investigations o f
State member banks should b e regularly conducted.
We belteve, ter, t h a t these credit investigations,
whenever pessible, s h o u l d b e made a t the same time
thet State examiner i s examining t h e bank: first,
because c f the desirability o f cooperation; second,
because more information c a n b e obtained a t less
cost; third, because t h e bank sheuld n o t needlessly
be s u b j e c t e d
t e additional visits
o f examiners.
We b e l i e v e a l s o t h a t w h e r e s p e c i a l e x a m i n a t i o n s o t h e r
than credit snvestigations a r e made o f member
State banks t h e charge f e r s u c h examination made
by the Federal Reserve B a n k sheuld n o t exceed t h e
fee that would b e charged b y the Comptroller o f the
Currency i f the institution were a Naticnal Bank."
In c e n n e c t i o n w i t h t h e t t h e B o a r d ' s l e t r e r r e f e r s
this letter X-3924 under date o f December
which t h e B o a r d states,
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a e ¢ a eebog 2
i n part;
"The Board recegnizes t h e inequity o f the
to
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Federal Reserve Bank of St. Louis
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present method o f assessing state member banks f o r
the c o s t o f e x a m i n a t i o n s a n d h a s r u l e d t h a t t h e
Federal R e s e r v e B a n k s n e e d n e t a s s e s s a g a i n s t e a c h
State m e m b e r b a n k e x a m i n e d t h e e x a c t c e s t s
o f the
particular examination, b u t m a y assess against a l l
of the state member banks examined during a
calendar y e a r t h e e x p e n s e s
o f a l l examinations
made d u r i n g t h e c a l e n d a r y e a r i n p r e p e r t i o n
assets
o r resources
o f t h e banks examined
t e the
o n the
detes o f the examinaticns."
These letters weuld s e e m t o close t h e matter.
There i s n o t h i n g m o r e w e h a v e e x c e p t t h i s , t h a t t h e
Federal R e s e r v e Agents! C o n f e r e n c e m o v e d t o adjcurn,
the e n d o f t h e J o i n t C o n f e r e n c e , s u b j e c t
a t
t o the pleasure
of t h e F e d e r a l R e s e r v e Board.
Governor Yeung.
I s there anything e l s e t o come
before t h e meeting? I f not, Dr. Goldenwesier i s here
and has a
and I
story that will n o t take a
great length o f time
a m sure y e u will a l l b e interested
i n it.
Dr.
Geldenweiser.
Mr. Goldenwesier. M r . Chairman a n d gentlemen, I
presume
t h e Gevernor mears
t e have
m e make a
brief
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statement o f the business situation.
Business h a s b e e n sliding o f f somewhat i n the last
few months.
That I
There a r e , h o w e v e r ,
think i s true, a s a general statement.
m a n y parts
would n o t b e the case.
e f the country where that
I n New England, t h e revival o f
the textile industry h a s h a d t h e effect o f making business r a t h e r b e t t e r t h a n i t h a d b e e n f o r s o m e t i m e past.
In seme o f the agricultural sections o f the country better prices for the crop, together with a n abundance o f
crop, i n most cases h a s created a better situation.
The i n d u s t r i e s t h a t h a v e p r i n c i p a l l y declined,
the steel industry a n d the automebile industry.
are
T h e
eautemebile industry expects t o have a n outout this year
perhaps
a s m u c h a s 2 5 p e r c e n t s m a l l e r t h a n l a s t year.
Of course t h e impertant factor i n the situation h a s
been t h e cessation o f production a t the Ferd plant,
but that does n o t probably account f o r a l l e f it.
The distribution c f commodities h a s alse somewhat
slewed down.
C a r l e a d i n g s h a v e b e e n much smaller
in
the l a s t f e w months t h a n t h e y h a d b e e n i n t h e p r e c e d i n g
year; a n d cont i s true also both o f the whelesale a n d
ef t h e r e t a i l t r a d e .
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One o f the most interesting changes i n the business situation has b e e n that prices h a v e turned up;
for abeut f o u r menths consecutively t h e price index
of the Bureau o f Laber a n d Statistics h a s advanced.
First i t advanced rather slowly.
I n the last t w o menths
it has advanced more rapidly.
The principle element i n the advance h a s been t h e
rise i n the price o f agricultural commodities; b u t nonagricultural commodities, w h i c h have b e e n slightly declining, r e c e d i n g ,
f o r t h e matter
o f t w o years, h a v e
ceased t e decline i n price a n d there has b e e n seme ad-
vance i n that group o f commodities.
Perhaps t h a t s u m m a r i z e s t h e b u s i n e s s s i t u a t i o n .
I intended t o s a y a
few words
o n t h e questicen o f t h e
gold policy o f the Federal Reserve System, a r the credit
policy a s expressed i n the gold policy f o r t h e past f e w
years.
I n order, perhaps, t e contribute t o dispelling
the apinion which i s very widely held that the Federal
Reserve
System
has
managed
its
sold
5 0
a s
t a prevent
it from exercising its customary influence o n credit
and prices,
and as a
consequence
i t has h a d a
very s e -
rious influence i n preventing t h e recovery o f the world
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the diserganizatien e f the war.
In the earlier years w e were highly complimented o n
the p e l i c y t h a t w a s p u r s u e d
i n this c o u n t r y ; w h i c h p r e v e n t -
ed the flew e f gold frem creating a n inflation.
recent y e a r s ,
a i
i n t h e l a s t t w o o r t h r e e years, t h o s e c o m -
Ppliments have been changed t o severe criticisms.
W e are
accused o f sterilizing the gold, e f having played the
traditional part c f India i n hoarding geld, and, b y doing
that, preventing t h e adjustment o f conditions a n d preventing t h e e q u i l i b r i u m f r o m b e i n g e s t a b l i s h e d t h r o u g h -
out t h e world.
The a c c u s a t i o n
i s that w e have acquired a
very l a r g e
prepertion, a n undue proportion, o f the world's gold
supply a n d t h a t w e a r e h e l c i n g
policies,
i n a
o n t o it, b y our credit
way which prevents
i t from exercising t h e
influence t h a t i t c u g h t t o exercise,
a n d which weuld
bring i n its wakeran adjustment that would b e beneficial
to the world.
These statements, gentlemen, have been s c general
that I have felt t t was perhaps worth while t o speak c f
them here f o r a moment.
The accusations h a v e n o t onlyvommeifrrm abroad, b u t
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Federal Reserve Bank of St. Louis
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they have b e e n quite general i n this country.
eur b e s t k n o w n i n s t i t u t i o n s
chorus
o f accusers. I
o f learning h a s j e i n e d t h e
believe m y s e l f t h a t t h e S y s t e m
dees n e t deserve s o much o f the erecit f o r i t s earlier
pelicy n e r o f t h e b l a m e f o r t h e m o r e r e c e n t pelicy.
The gold a t n o time h a s b e e n sterilized.
During t h e time immediately fellowing 1920, w h e n
there was a
large ameunt o f gold coming in, i t was used
by t h e m e m b e r b a n k s
t o reduce t h e i r indebtedness
a t the
reserve banks, a l o n g w i t h t h e currency which was flowing
back from circulaticn; eredit h a d e f tourse b e e n through
a tremendous expansion i n 1920, a n d there w a s a curtailment o f eredit a l l aleng t h e line. O u r r e n c y w a s flowing
in a t the same time that t h e gold was flowing in. This
gold d i d not, t o b e sure, enter inte t h e reserves o f the
member banks.
T h e gold, however, reduced t h e indebted-
ness o f the member banks a n d thereby eased t h e credit
situation v e r y decidedly.
I
f i t had net been f e r this
gold t h e member banks would i n debt a
er m o r e d o l l a r s
i n excess
That, h o w e v e r ,
period I
metter o f a billicn
o f w h a t t h e y a r e now.
i s n o w ancient history,
a n c the
want t e speak o f a little more i n detail,
is
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the p e r i o d s i n c e 1 9 2 2 , w h e n t h e c r e d i t c o n t r a c t i o n h a d
run i t s c o u r s e a n d w h e n c r e d i t a n d b u s i n e s s h a d t u r n e d
up.
During t h e five-year period f r o m June, 1922, t o
June, 1927, imports c f gold t e this country were
$750,000,000.
D u r i n g that period there was practically
no change i n the volume o f reserve b a n k credit, t h a t
is, taking t h e period a s a whole.
and o t h e r f l u c t u a t i o n s - - t h e
T h e r e were seasnnal
l o w peint w a s reached
in
1924, &¢.--but comparing the period i n the summer o f 1922
with t h e s u m m e r o f 1927, t h e r e w a s p r a c t i c a l l y n o change.
The gold went, t o the extent e f some three hundred million
dollars o r a little more, i n t o currency.
Of course p e e s w h a a natural growth i n the demand
for currency;
t h a t i s t h e member banks w e u l d k e e p t h e g o l d
deposited w i t h t h e F e d e r a l r e s e r v e b a n k s a n d u s e a
part
of the credit created that w a y o r a part e f the balances
created t h a t w a y t o meet t h e c u r r e n c y demand.
About
475 millions o f that gold was added t o cur bank reserve
balances, a n d o n the basis o f that 4 7 5 million o f additional r e s e r v e s t h e m e m b e r b a n k s h a d i n c r e a s e c t h e i r
loens and investments b y $8,600,000,000, which i s a rate
76
of i n c r e a s e
o f over 1 8 t a 1.
bank c r e d i t
o n the basis
T h e e x p e n s i o n o f member
o f dollar reserve o v e r t h a t
period h a s b e e n 1 8 t o 1, which does n o t give t h e impressien o f a n y sterilization o f the gold.
T h e gold has
had full effect, a n d i t had a n undoubtedly large effect
im the credit expansion because o f the fact w i t h which
you are all familiar, t h e t mest o f the liabilities o f
the b a n k s h a v e b e e n i n t i r e deposits, w h i c h r e q u i r e d o n l y
small reserve, e n d t o show that there has b e e n possibility
of exceptional large growth o f the banks i n the country,
member a n d nenmember, t h e increase during t h e period
was over 1 2 billion, w h i c h was a t the rate o f 2 5 t e l.
This r a t e o f e x p a n s i o n
o n the basis c f t h e reserve h a s
heen fully a s great a s was pessible under t h e banking
system o f the country prior t o t h e Federal Reserve System,
and the Federal Reserve System, therefore, h a s n e t i n
any w a y reduced t h e effectiveness o f the gold e n the
credit s i t u a t i o n ,
a s c o m p a r e d w i t h c o n d i t i e n s t h a t pre-+
vailed p r i o r t e t h e System.
The general statement t h a t t h e gold has n e t been,
through t h e i n s t r u m e n t a l i t y o f t h e F e d e r a l R e s c r v e S y s t e m ,
permitted t e exercise t h e influence t h a t i t weuld h a v e
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under earlier conditions,
ef those facts.
i s absolutely false i n view
T h e gold has b e e n used i n meeting cur-
rency demand, w h i c h o f c o u r s e r e d u c e s t h e a m e u n t o f t h e
borrowings a t the reserve banks f o r t h e same amount.
The r e s t o f i t f o r m e d t h e b a s i s f o r t h e v e r y r a p i d e x -
tension,
Now, t h e growth o f credit o f the member banks t o
eight billion dellars, during t h e period o f five years,
deserves s o m e analysis. T h a t growth has b e e n t w o billion,
seven o r eight hundred millien dollars i n commercial
loans, about t h e same extent i n security loans, abeut
three billion i n investments,
s o that t h e growth o f
credit has been more rapid during the period than the
growth o f industry.
I a m refraining f r e m using charts, a s y o u gentlemen see, because I
feel that mest o f these things c a n
be-stated witheut illustration, just as effectively:
but i n any case, i f any o f y o u wish t c see ‘it i n more
detail o n the charts, t h e y will b e available here.
The growth has been, therefore, very largely i n
investments e n d i n loans, d i r e c t l y f o r t h e p u r p o s e o f
supporting i n v e s t m e n t s ,
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o r supperting s t o c k exchange
78
expansion, w h i c h o f c o u r s e a l s o h a s b e e n o n a
very l a r g e
scale.
During this period t h e prices i n this country have
not changed very much.
T h e y advanced i n 1925; t h e y de-
clined semewhat e a r l y i n 1924; t h e y went u p again i n
1925; t h e y d e c l i n e d f r o m 1 9 2 5 t o t h e m i d d l e o f this
yeer, a n d n e w they are approximately where t h e y were five
years a g o .
T h e r e h a s b e e n n o rfse i n the general prive
level during t h e period,
The question t h e n arises, w h a t could t h e Federal
Reserve System have done, other t h a n i t has done, t h a t
would h a v e h e l p e d
t o adjust t h i n g s
‘level above t h e present condition?
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Federal Reserve Bank of St. Louis
b y raising o u r price
T h e Federal Reserve
System could have done that c n l y b y doing something which
could n o t h a v e b e e n d o n e p r i o r t o i t s e s t a b l i s h m e n t ,
namely,
b y exercising i t s influence towards creating
more a n d m o r e b a n k reserves,
n o t i n response
t a any de-
mana o n the part o f member banks, b u t i n respense t o a
policy o f reising prices;
i n other words,
b y infletion.
The o n l y w a y i n w h i c h t h e F e d e r a l R e s e r v e S y s t e m c o u l d
have e c t e d d i f f e r e n t l y w o u l d h e v e b e e n b y g o i n g o u t
into t h e open market a n d buying large amounts o f securiéies,
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beyond t h e peint a t which these purchases would result
in t h e r e c u c t i o n
o f discounts,
buying
t e the peint where
they w e u l d n e f u r a l l y i n c r e a s e t h e a s s e t s
o f the reserve
banks a n d would directly enter i n t o t h e reserves o f
member b a n k s a n d c o n s t i t u t e a
basis f o r v e r y l a r g e e x p a n -
Sion o f bank credit,
I think i t is well worth while t e realize that, a n d
toa say that t h e criticism i s based o n 4 misunderstanding
of the System and o n an exaggerated idea o f the power
of t h e System, s h o r t o f s o m e t h i n g t h a t w o u l d a m e u n t
substance
to a
detail o f a l l i t s r e s p e n s i b i l i t i e s ,
cause i t would involve a
i n
be-
forcing c u t o f credit, w h i c h
would heve been impessible prior t e the establishment
of the System--forcing i t cut i n view o f the fact that
we have s u c h large reserves, a n d there i s a pessibility
or purchasing then, i f that was t h e one object o f it.
I believe that i s all I want t o say, Gevernor, u n less t h e r e a r e questions.
Geverner Young.
D e e s anyone care t o make a n y inquiry
of Dr. Goldenweiser?
Governor Harding. I
taken i n t e consideration,
would like t o ask h i m i f h e has
i n comparing t h e five-year
80
period h e has referr<d to, w i t h the twe-year pericd o f
1915 a n d 1916, t h a t t h e p r i m a r y p u r p o s e
impertations
o f these g o l d
i n 1915 a n d 1916--we h a d lerge importetions
in t h a t p e r i o d - - w h e t h e r a l m e s t t h e s o l e p u r p o s e
o f that
was n o t t o p a y for goods a n d commodities, w a r muniticns
and things o f that sort, there being a n actual demand a n d
forcing prices u p ? T h e primary purpese o f thdésemoere recent importations h a v e n o t been s a much f o r t h e purchase
of goods a n d c o m m e d i t i e s
a s they have b e e n f o r t h e pur-
pese o f e s t a b l i s h i n g s e c o n d a r y r e s e r v e s f o r t h o s e c e u n t r i e s
that a r e trying t o get b a c k o n the gold standard, etc.,
and setting u p money here f e r citizens o f countries t h a t
have a fluctuating currency a n d sec forth. T h e r e being
ne p e r s i s t e n t d e m a n d f o r t h e e x p e r t i n g
c f goeds,
and
having t h e gecld importation, t h e c n l y effect h a s b e e n
in the price o f securities rather t h a n commodities.
Isn't there something i n that thecry?
Mr. Goldenweiser. I
Gevernor.
think that i s exactly right,
A t that time there was a
commodities f o r t h e belligerents.
tremendous
demand for
I t was that demand,
backed b y the gold, w h i c h caused prices t e advance.
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And t h a t r e m i n d s
which I forget.
m e o f e n e thing I
wanted
t o mention 2
T h a t is, thet not enly has the gold
exercised a l l o f its petentialities
tn t h e w a y o f énnstébtuhing a
i n this country,
base c f b a n k reserves,
increasing t h e base, b u t some o f the gold still continues t o count a s reserves f e r e t h e r countries.
There are
some balances, created through t h e impertation o f the
gold, w h i c h a r e n o w h e l d h e r e a s d o l l a r b a l a n c e s a n d
constitute t h e b a s i s
o f credit a n d c u r r e n c y i n 4
number
ef other countries, s e thet the exransion, o n the basis
of the gold, h a s b e e n rather o f unusual proportion.
Governer Young.
A p e there a n y other inquiries?
Is t h e r e a n y t h i n g e l s e b e f o r e t h e m e c t i n g ?
tir. Hamlin.
M r . Chetrman, I
meve t h a t t h i s m e e t i n g
de now adjourn.
(Whereupon, upen motion duly seconded, t h e
Joint Conference o f the Federal Reserve
Board with the Governors, Federal Reserve
Agents a n d C h a i r m e n o f t h e F e d e r a l R e s e r v e
Banks adjourned s i n e die a t 1.05 etclock p.m.
on Friday, November 4, 1927.)
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